Yesterday, FHA announced that it was cutting the timeframes which some qualified would-be buyers who had gone through a short sale, foreclosure or bankruptcy would have to wait before purchasing another home.
“FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage,” said FHA Commissioner Carol Galante, in a letter to mortgagees announcing the changes.
Until the announcement, buyers would need to wait two years after completion of a bankruptcy or three years after a short sale or foreclosure before they would be able to purchase another home. Under the new guidelines, buyers would need wait only a year as long as they meet the following criteria in documenting the reason for the financial distress:
- Evidence that household income fell by more than 20 percent for at least six months
- Evidence the drop in income was tied to unemployment or some other event beyond the homeowner’s control
- Evidence that the would-be buyer has been current on 12 consecutive housing (read: rent) payments
- Buyers need to complete a one-hour housing counseling course
Those aren’t necessarily the lowest hurdles to cross. The first criteria alone fails to recognize that a job loss of even one or two months can cause enough financial distress to leave homeowners unable to pay (and/or catch up on) their mortgage payments. If I had to speculate, that’s going to be the item that knocks most buyers out of the running under the loosened guidelines.
Having said that, it’s clear FHA is trying to draw a line between those who lost their homes because of a legitimate financial hardship and those folks who, seeing their home worth considerably less than it was, simply walked away. While some argued in favor of such actions (and it may have made sense for some), I’ve never quite understood the logic behind it. It always felt a lot like buying a car and parking it three blocks off the lot because it had lost 10 percent of its value as soon as it left the dealership.
The timing also makes a bit of sense. With the worst of the foreclosure/short sale waves long since behind us (at least in non-judicial states where shadow inventory is as much of a myth as the chupacabra), FHA likely has a better handle on the numbers involved than the agency has had in the past.
Will these changes help a substantial number of people? Probably not. Does that make this a bad idea? Again, probably not.
Want more details? Call or e-mail me and I’ll help however I can.
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While you’re here, check out some photos of homes for sale in Coldwater Springs in Avondale … solid price point perfect for FHA buyers.
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