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Apr 01

FHA to reject borrowers in minor credit disputes

NEW YORK (CNNMoney) — The Federal Housing Administration is about to make it even tougher to borrow money from Uncle Sam to buy a home.

Starting April 1, borrowers in ongoing disputes with creditors over debts of $1,000 or more may no longer qualify for FHA-insured loans. Even borrowers with perfect credit scores can be denied over a single $1,000 problem charge.

The new rule requires borrowers with loans in collection that add up to at least $1,000 to either pay off the debt, prove they’re making payments on the disputed loans or explain why the disputed loan is somehow wrong — and document their case — before they can close on a FHA loan.

The change is part of the agency’s effort to reduce its risk as it grapples with a depleted reserve fund that has fallen below legally-mandated levels. The FHA insures mortgages which are originated by private lenders. To help bolster its capital reserves, FHA will also hike the insurance premiums it charges borrowers beginning in April.

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