The Fair Housing Administration as part of the stimulus package that has been just passed, has raised limits in some markets to fantastic limits.  In reality, how many of these home owners can qualify with FHA guidelines, and what type of credit do these borrowers need to attain these loans.  Both questions are important, because limited information that's been available is now suggesting that there will be a number of conditions imposed by the lenders.  But these same lenders will also benefit from the protection these loan provide through FHA and the government.

The real question is if that 620 FICO score borrower will have more of a chance on their previously classified jumbo loan, and will a few bumps on their credit record not be a big issue with most of these lenders.  The answer to this question is uncertain.  Few lenders have even reacted quickly enough to the new limits, and with current underwriting back logs with FHA loans, these limits are yet to be tested with most wholesale lenders.

My bet is that underwriting guidelines will be still difficult.  Regardless of the protection provided by the mortgage insurance on these accounts, my feeling is that due to liquidity issues and the fact that the banks have been burned with so many of these sub prime loans, that you have about a snow ball's chance in hades to get approved if your looking weak with your credit.   I really hope that I'm wrong, but recent bank write offs are not a recipe for a reduction in underwriting standards.  I actually think lenders will be more resistant to anyone they deem as a payment risk.

My recommendation is that you follow closely Jeff Belongers blog, and I will be posting more substantial updates in regards to underwriting issues regarding FHA loans.  I don't want to discourage anyone but if you do have a questionable credit history, the best option would be to work really hard in correcting any mistakes that the bureau's could have made.  Another trend I've noticed often is that a number of credit card companies are willing to remove late payments if their client is aggressive in making those missed payments.  I've also noticed many more actual mistakes by creditors, so you really need to work closely with a credit specialist.

Finally, if your a consumer, make sure you work closely with someone who really understands the FHA process. I know my comments earlier in this post may not seem entirely positive, but in reality each underwriter is different, and each bank has it's own policies within FHA's guidelines.  Therefore the door may slam shut at one bank but be wide open with another.  It pays to be patient and persistent!