The Federal Housing Authority released a statement on Friday revealing their plans to amend the waiting periods for potential borrowers who have been through a foreclosure, bankruptcy, deed-in-lieu, or short sale to as few as 12 months.
This would be a significant change from their current policy of keeping would-be homeowners on the sidelines for up to 3 years because of these financial blemishes, potentially empowering hundreds of thousands of people to “get back in” the housing game. The new measure will be enacted for any new case numbers after August 15, 2014 and effective through September 30, 2016, when it will be reviewed.
The FHA report takes into account the number of Americans who went through a “recession-related financial event,” but are back on stable financial ground and should be deemed good future credit risks. “Their credit histories may not fully reflect their true ability or propensity to repay a mortgage,” FHA explains.
It’s expected that loan applicants would have to show evidence of their recession-related financial detriment to be considered eligible for the new shorter waiting period, like evidence of a lost job or reduction in income that were out of the homeowners control. The lender will also verify these “credit impairments” and show that the subsequent income loss was at least a 20% reduction and 6 months in duration.
Of course these “Recession Refugees” will be subject to the same application and underwriting standards as any loan applicant. FHA will look to see a pattern of reestablished credit and good payment standards in the 12 months after the financial event, whether that is from paying rent, another mortgage, or other credit accounts on time.
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