May 6, 2015
Most FHA loan applicants are well aware when they apply for a new home loan that they are about to give permission to the lender to do an extensive review of FICO scores, loan repayment history, financial responsibility in general, income, and much more.
But did you know that there are federal laws that govern how a lender must proceed in order to be fair during the process? These laws also explain in general what to do if negative credit information requires “adverse actions” such as denial of a loan application.
The Fair Credit Reporting Act instructs lenders on how to proceed in such cases, and FHA loan rules in HUD 4155.2 Chapter One, Section B include the following:
“The Fair Credit Reporting Act (FCRA) is intended to control collection and dissemination of information about granting credit to a borrower. The FCRA is designed primarily to ensure that consumer reporting agencies exercise fairness, confidentiality, and accuracy in preparing and disclosing credit information.”
You cannot be turned down for an FHA home loan without having or (being given) access to the information that led to the decision to deny the loan. Chapter One makes it quite clear how a lender must proceed in such cases:
“As required under the FCRA, if a lender takes adverse action that is based in whole or in part on a credit report, the lender must disclose to the borrower the name, address, and, if available, the telephone number of the credit reporting agency issuing the report.”
But that’s not all–FHA loan rules require the notice must be provided at the same time as the rejection of a borrower’s loan application, or according to Chapter One, “within a reasonable time thereafter”. Such notifications must inform the borrower that he or she, “is entitled to request, from the credit reporting agency, the information reported to the lender that was used as a reason for rejection.”
That information can help the borrower put financial affairs in order and get better prepared for another application at a later time, if the applicant so chooses. Knowing why you could be denied a home loan can definitely help you to take steps to better prepare for application time. You can learn more about the Fair Credit Reporting Act at the Federal Trade Commission official site. That page features a link titled, “Text Of Rule” which allows you to read a .PDF that contains the entire document.
Do you have questions about FHA home loans? Ask us in the comments section. We hold all questions and comments for review before posting them to the site.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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