Medical Collections and FHA Mortgage Change July 1, 2012

cutsMedical Collection Boo-Boo’s are usually the hardest things to remove from a credit report, even though the Fair Credit Reporting Act does have pretty strong language about them.  Fortunately, Medical Collections and FHA Mortgages can be easier to resolve than you might think!

The final rule of HIPAA (the Health Insurance Protability and Accountability Act) makes sharing personal medical record informations illegal with with the public. Remember all those forms you now sign when you check into the doctor’s office – that’s what it’s about.

The rules of HIPAA specifically includes past, present and future payments of health care.  Meaning, it  is pretty much impossible for Medical Providers to take out Collections and Judgements against people who owe them money.  If they did, I would know, when looking at your credit (for instance) that you owed the Cancer Center money, or a Psychiatrist…  I could make assumptions about you because of that debt, and it could cause you to be viewed differently for jobs.

The way most people get collections is because of co-pay. They go to the doctor, pay their co-pay – and then leave the rest to the insurance company.  When the insurance company does not pay all of the bill, the balance owed to the doctor is assigned to a collection company, and added to your credit report from the Collection Company (thus masking who the medical provider is).

These collections DO pull your credit score down – AND starting on July 1, 2012 – FHA was going to  begin requiring that you settle with your medical creditors in order to get a mortgage loan… that includes your MEDICAL collections too!  This is going to be especially tough for some folks, and is a HUGE change in direction for FHA!

For the past 30 years or more, Medical Collections were not required to be paid (in most cases) to get a FHA Mortgage Approval.  I’m not arguing that people should be allowed to skip bills to their doctors (at all). However, being in this business as long as I have – I’ve seen some pretty egregious situations where people were in an Accident, a doctor made a mistake on the delivery of a child, someone was hurt on the job – and they were in the process of disputing who was responsible for paying what.

With this latest move – there were to be no exceptions.  

This underwriting guidelines was RESCINDED on June 15, 2012 – and will not immediately go into effect on July 1, 2012 as planned.  However, we expect FHA to provide more clarification on this topic, and we will not be surprised if Medical Collections are part of a new round of underwriting “tightening” that happens later this year!  FHA Mortgagee Letter delaying that Medical Collections be paid

If you are considering a mortgage loan, please contact Steve and Eleanor Thorne, 919-649-5058 – or connect with us on Facebook!  We work with people every month who had some credit issues, cleaned them up, and then were able to buy a house!  Don’t give up! We can help you do this!!

I try and answer all questions :)