How New CFPB Rules on Medical Debt and Medical Collections and Mortgages Will Impact Your Mortgage Application and DTI Ratios
The Consumer Financial Protection Bureau (CFPB) has finalized new rules that will significantly change how medical collections and mortgages impact credit reports and lending decisions. These changes will take effect soon, but it’s essential to understand the timeline and whether further changes are possible.
When Will the New Rules Be Implemented?
The CFPB finalized the rule on January 7, 2025. It will officially take effect 60 days after publication in the Federal Register, estimated to begin March 17, 2025.
Lenders and credit reporting agencies must comply with the new regulations starting on that date.
Is This Rule Finalized or Subject to Change?
The rule is finalized, which means the CFPB has completed its rulemaking process. However, it is still possible for legal or political challenges to arise before or after the implementation date. For example:
- Legal Challenges: Some industry groups have already expressed concerns about the rule, arguing that it exceeds the CFPB’s authority. Legal challenges could delay or modify the rule’s implementation.
- Legislative Action: Congress could intervene to amend or overturn the rule, though this is less likely in the short term.
The rule will go into effect as planned, but staying updated on any developments is always wise.
What Does the Rule Change?
- Medical Debt Removed from Credit Reports:
- Lenders Cannot Use Medical Information:
- Lenders won’t be able to use medical debt collections or related information when making lending decisions.
- Impact on Credit Scores:
- The CFPB estimates that removing medical debt from credit reports will increase credit scores for affected individuals by an average of 20 points.
What Does This Mean for Mortgages?
While medical collections will no longer appear on credit reports, the debt remains. Suppose you make monthly payments on a medical collection (e.g., through a payment plan).
In that case, lenders may still include those payments in your debt-to-income (DTI) ratio because the rule does not eliminate the debt—it only removes it from credit reports.
Key Dates to Remember
- January 7, 2025: Rule finalized by the CFPB.
- March 17, 2025: Rule takes effect (60 days after publication in the Federal Register).
What Should You Do Now?
- Monitor Updates: Stay informed about legal or political challenges that could impact the rule’s implementation.
- Prepare Documentation: If you have medical debt, ensure you have records of payment plans or agreements in case lenders request them.
- Work with Your Lender: Discuss how these changes might affect your mortgage application, especially if you have ongoing medical debt payments.
Medical Collections and Mortgages: How to Get Approved
The CFPB’s new rule is finalized and will take effect in March 2025. While it removes medical collections from credit reports and prohibits lenders from using medical information, the debt can still impact your mortgage application through DTI calculations. Stay informed and work with a knowledgeable mortgage professional to navigate these changes.
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*Important Information: This is for information purposes only. It isn’t financial advice. For your specific needs, Consult with your financial or legal representatives.
