Welcome to another Monday. As is the case these days in the mortgage business, I just received an update regarding policy changes. Being a correspondent lender, we regularly get updated from the various investors/banks we work with to keep up abreast of their latest changes.
The latest update I just received states effective August 13th, non-traditional credit is no longer allowed for FHA loans. All borrowers on FHA transactions must have a traditional credit history.
Also effective the 13th, seller funded down payment assistance programs (i.e. Nehemiah) are no longer accepted.
One of the results of the "mortgage meltdown", as the media so fondly likes to call it, has been the effective elimination of the sub-prime market. As the sub-prime market dissolved, FHA has become the new sub-prime. FHA has seen an influx of poor performing mortgages enter their portfolio. As this happens, we can anticipate that FHA guidelines will continue to constrict.
FHA has been a great outlet for many borrowers and it will continue to be. With that said, buyers need to be kept informed and need to realize that requirements are continuing to change. Yes, they will actually have to prove their worthiness to borrower the money they want to use to purchase a home.
As always, make sure your customers are pre-qualified or pre-approved by a trustworthy and reliable loan officer prior to placing any offers on a home.