Connecticut Housing Finance Authority (CHFA) Changes Collection Payoff Policy

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

The Connecticut Housing Finance Authority (CHFA) Changes Collection Payoff PolicyCHFA has always had a strict policy when it comes to judgments and collections, so it was a surprise to me to see them changing their policy on the payoff of collections.

Effective today, March 4, 2011, all loans being registered with CHFA will not be require show proof that outstanding collections under $1,500 have been paid off.  For example: 

  • A single outstanding collection account with a balance less than $1,500.00 do not have to be paid off in order to be eligible for financing.
  • A single outstanding collection account with a balance equal to or greater than $1,500.00 must be paid in full to be eligible for financing.
  • Multiple outstanding collection accounts with a total of $1,500.00 or more will need to be paid until the total amount of the collection is less than $1,500.00
  • But Multiple outstanding collection accounts that do not total $1,500.00 or do not have to be paid.
  • CHFA will continue to require outstanding judgments to be paid in full without exception.

CHFA is a loan program designed for First Time Homebuyers, and is one of the few loan programs in Connecticut that a homebuyer can still purchase a home with 100% financing.  CHFA allows a homebuyer who has less than $5,000 of funds to borrower the total downpayment and closing costs.  This means that many of the First Time Homebuyers who apply for a CHFA Mortgage do not have much money.  In the past some of the Borrowers that met all of the qualifications for a CHFA Mortgage, have had to wait until they paid off all collections, even very small ones.  For a Borrower that has limited funds this is a big challenge, so for them this is a huge change.

In a time that the trend has been to tighten up Loan Guidelines, this is a change in the opposite direction, and the first such move that I have seen in the last couple of years. It is a change that I have mixed feelings about.  Even though it will open up the pool of homebuyers, it is a very risky one.  If someone in not paying their obligations, and does not have enough money to pay off collections under $1,500, should they be purchasing a house?  Time will tell, and I hope this change does not cause CHFA to start experiencing many of the same problems that others have recently gone through.

 

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Who To Call For Your Mortgage Needs In Connecticut:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308, gsouto@mccuemortgage.com, or visit my McCue Mortgage Homepage.

 

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George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

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Rainer
248,806
Shay Campbell
Universal American Mortgage Company - Raleigh, NC
Raleigh, NC

George I do NCHFA, North Carolina Housing Finance Agency, loans and they do not require collection to be paid off at all.  Their quality of closed loans have been holding up very well.  This change in CHFA guidelines on collections is good both for the new homeowner and for the neighbor they move in.

Mar 04, 2011 11:22 PM #5
Rainmaker
1,021,092
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

George it is great that you are always on top of the morgage changes and get the information out quickly!

Mar 04, 2011 11:52 PM #6
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Emily Medvec Qualifying Broker
Hello Realty Partners - Santa Fe, NM
Realtor | Serving Santa Fe & Northern NM

George, you are certainly ahead of the "news" with this post. It is an interesting shift of attitude towards debt for the state's housing finance authority. How it will change behavior and future decisions will be interesting to track. I'm sure you will keep us posted.

Mar 04, 2011 11:56 PM #7
Rainmaker
1,338,467
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, I guess this is good for the people who owe $1,500.00 or less, but if someone can't pay this debt how are they going to make the monthly payments. It will be interesting to see how this turns out.

Mar 05, 2011 12:25 AM #8
Rainer
122,829
Cory Barbee
San Diego, CA
Broker (760) 563-4022

Do you think this is a hint as to where the market might be trending?

Mar 05, 2011 03:01 AM #9
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Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE

Yeah...I'd have mixed feelings about that too I think.  Yes, time will tell.

Mar 05, 2011 04:07 AM #10
Ambassador
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Dana, yes this was a surprise, especially for CHFA.

Andrea I have the same mixed feelings, lets hope for positive results.

Lenn I have the same concerns, and I have a feeling that we will be putting our own layer of risk on this before to long because we service these loans we do not sell them off.  One thing that I will say is that only USDA has tighter Debt to Income Ratio's than CHFA so their loans are looked at very closely when it comes to that, and they do not allow for flexibility in that area.

Ed, I agree, that is why I pointed out that I had mixed feelings about this in the blog.  I would love to see more Buyers get their first home, but not at the cost of more foreclosures.

Shay thank you for adding that, I hope that we have the same experience.

Bill thank you my friend.

Emily I am sure that we will start to see the affects of this very quickly one way or another.

Michael that question is on my mind also.

Cory, I don't know, but this is the first sign of policy being set in a more liberal direction since the tightening began.

Sally yes time does have a way of providing the answers.

Mar 05, 2011 04:53 AM #11
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

George, I'm glad that in CA the Seller paid down payment program is no longer an option. Many who were not in the most stable financial position were buying homes with FHA loans with seller assisted down payments. If a home buyer cannot pay their own down payment, or uncollected debts under $1500, they most likely won't have reserves going into homeownership. Becoming a new homeowner and not having reserves is not the best idea, IMO.

Mar 05, 2011 05:23 AM #12
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Pamala, we do not have any programs that allow for Seller paid Downpayments either, but Sellers are allowed to contribute towards Closing Costs. CHFA is a quasi government progam and is funded by both Federal and State money.  The purpose of the program is to give First Time Homebuyers a reduced subsidized rate.  They have always been on the cautious side in the past except for credit scores.  They are not really credit score driven, and look more at the whole financial picture and why someone might of gotten in trouble financially in the past.  Having said all that I share your concernss about this change.  Collections are usually a sign of a Borrower not taking repayment of their debts seriously.  I hope my concerns are proven wrong.

Mar 05, 2011 09:38 AM #13
Rainmaker
829,284
Barbara Altieri
RealtyQuest/Kinard Realty Group, Fairfield and New Haven County CT Real Estate - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

George -- This is surprising news in light of all the tightening in the last few years.  While this is good news for the buyer, I am concerned they could end up in serious trouble down the road since they have a history of nonpayment.  I hope our concerns are unnecessary.

Mar 05, 2011 10:47 AM #14
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Barbara, I hope our concerns are unnecessary also especially since we service many of these loans.  I am sure that if they start seeing defaults from these Buyers they will pull the plug on this change quickly.

Mar 05, 2011 12:39 PM #15
Rainmaker
1,265,884
Al & Peggy Cunningham, Brokers
RE/MAX West Realty Inc., Brokerage - Brampton, ON
Our Family Wants To Help Your Family!

Sorry George, this puts up red flags all over the place. We can see why you have mixed feelings. This sounds like trouble!

Mar 05, 2011 12:52 PM #16
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Donna Bigda
RE/MAX Alliance - Branford, CT
Greater New Haven CT Real Estate

George - This really puts a new spin CHFA's policy for home buyers.  In light of everything that has taken place over the past few years in the housing market I too have mixed feelings about easing of these guidelines.

Mar 05, 2011 01:14 PM #17
Rainer
28,650
John Poulsen
Century 21 AllPoints - Branford, CT
John

Glad to see CHFA is starting to notice that you don't need to be squeaky clean to get a loan. Welcome to 2011!

Mar 05, 2011 01:41 PM #18
Rainmaker
1,285,999
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

George, sorry buddy that I didn't get here soon enough to suggest, but it looks like you did fine without my help.  I'm not sure of the reasoning here...it almost seems as though guidelines have been bouncing around a bit trying to find a happy medium.  I understand John's #18 point of view, but I'm not sure I agree with the direction of this new program.  It feels a little like the old "if you're breathing...you can get a mortgage" mentality.

Mar 06, 2011 05:49 AM #19
Rainmaker
430,916
Frances C. Rokicki
Fran Rokicki Realty, LLC - Bolton, CT
Broker-Mentor,CRS

What?  Jeepers!  You would think that they would have learned the lesson, by now.  Yet, they are raising pmi, for all buyers under 20% and adding that 1/4 point to all loans now?  I cannot figure out what the heck they are thinking!

Mar 06, 2011 06:19 AM #20
Rainmaker
878,324
Ann Hayden
Berkshire Hathaway HomeServices Select Properties-St. Louis Missouri - Chesterfield, MO
SelectAnn.com

George,

This sounds like a strange rule to change......

Ann Hayden in Wildwood, MO

Mar 06, 2011 02:35 PM #21
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Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

George I too would have mix feelings about such a move.  Consumers can always depend on you to provide breaking mortgage news in CT

Mar 07, 2011 12:03 AM #22
Rainmaker
678,464
William James Walton Sr.
WEICHERT, REALTORS® - Briotti Group - Waterbury, CT
Greater Waterbury Real Estate

George, this is starnge indeed. Why would CHFA relax its lending requirements like that?

Mar 07, 2011 01:44 PM #23
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Al and Peggy, I hope not but it does have a lot of potential to create problems.

Donna I know what you are saying because I share those same concerns.

John, they have always had a policy that you don't have to be squeaky clean and were not Credit Score driven.  For example, we were able to do CHFA Loans with Credit Scores in the Lower 500's thought they prefer to see 580 and over.  This was because they looked at why the scores were low and not just at the scores.  So if someone got in trouble because they lost their job or because of medical issues, they took that into consideration as long as the Borrower had cleaned things up and was showing a positive payment history since the issue they had.  But part of cleaning things up was to clear judgments and collections.  This is a new twist to there policy, and even though I am in the business of doing loans, I don't think it is wise to give someone a mortgage that has low credit scores because of financial mismanagement.  That got us into trouble in the past and we are still paying the price for it.  I hope this does not contribute to the existing problems.

Nick I also see what John is saying and I am sure that he could make good points to support his position, but I tend to have more of your line of thinking on this, and have major reservations about this new policy.

Frances this is certainly a different direction than Fannie Mae & Freddie Mac have been taking for the last couple of years, which is to tighten and not loosen.  I would hate to see more CHFA loans default as a result of this.

Ann yes it sure does..

Jennifer thank you, I try.

William I wish I had a good answer for your question, but I don't.  I hope they know what they are doing.

Mar 10, 2011 07:33 AM #24
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