HUD issues new FHA Credit Guidelines

 


In Mortgage Letter 2012-3, The Department of Housing and Urban Development has issued new guidelines concerning outstanding collections and disputed accounts. The new guidelines apply to all FHA insured loans with the exception of non-credit qualifying FHA streamline refinances. In the past, a file was required to be referred to a DU underwriter for review if the credit report revealed that borrower was disputing any credit accounts or public records.

Under the new guidelines, if the Automated Underwriting System, using the TOTAL Mortgage Scorecard, rates the mortgage loan application as Accept, the mortgage application will no longer be referred to a DE underwriter for review due to disputed accounts, as long as these accounts meet both of the following conditions:

The total outstanding balance of all disputed credit accounts or collections are less than $1,000,and disputed credit accounts or collections are aged two years from date of last activity as indicated on the most recent credit report.

If the borrower has individual or multiple disputed credit accounts or collections with singular or cumulative balances equal to or greater than $1,000, the accounts must be resolved (e.g. payment arrangements with a minimum three months of verified payments made as agreed) or paid in full, prior to, or at the time of closing. The lender must obtain documentation supporting the payment arrangements or that the debt has been paid off. The payments arranged for the accounts must be included in the calculation of the borrower’s debt-to-income ratios.

Disputed credit accounts or collections resulting from identity theft, credit card theft, or unauthorized use, etc., will be excluded from the $1,000 limit under the terms shown below. The mortgagee must provide in the case binder, a credit report or letter from the creditor, or other appropriate documentation, to support that the borrower filed an identity theft or police report to dispute the fraudulent charges. Mortgagees must provide documentation in the case binder to show all disputed or collection accounts are resolved, verified as not a debt to the borrower, arrangements made for payment, or paid in full.

If the total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts (e.g. entered into payment arrangements with minimum three months verified payments- paid as agreed) or paid in full at the time of, or prior to closing. Mortgagees must document the case binder showing each account was resolved or paid in full.

If the total outstanding balance of all collection accounts is less than $1,000, the borrower is not required to pay off the collection accounts as a condition of mortgage approval.

FHA continues to require judgments to be paid off before the mortgage loan is eligible for FHA insurance.*

Please call Doug Kaller @ (775) 828-7006 with all of your FHA questions.