First
The Sweet
This new
piece of work will help starving Realtors a bit if they are smart, as well as
people who have been anxious about being able to be qualified to purchase a
home.
There are
two schools of thought.
For those
who have been pre-qualified, they may be asked to clean up some messy business
on the credit report before moving forward. The other side is, if there
are items on the credit report that are in dispute status or items that are in
excess of $1000 combined and are less than two years old, you are no longer
automatically disqualified.
Previously,
items in dispute or certain collections automatically kicked the application
back to the DE underwriter for review. Now it seems there will be other
options. It appears that the inference is that FHA is stating that we
(FHA) accept the fact that there are legitimate and ongoing credit issues and
we would like to provide guidance to the mortgage co and delegator underwriters
on what rules to follow when there are items in dispute. So, it seems in
the future FHA is authorizing something different to be done in these
circumstances. What these rules are still remains to be seen.
I’m going to
make a rather bold statement now, but it seems after an interesting step
forward by the FHA, they are acknowledging legitimate credit
repair/restoration.
Per
Mortgagee Letter 12-03, “if the borrowers have collection accounts that exceed
$1000.00 they must all be resolved, paid in full, or a payment agreement
established with a minimum of three months of timely payments.” This is not the
way it used to be. We look at this as a very good adjustment that will
allow more people to become qualified. So Realtors, be smart. If the
total collection amounts are less than $1000.00 they are not required to be
resolved/paid. These collections include medical and cannot be paid down or
under the aggregate to avoid paying off the total amount. Example, if the
borrowers have two $550.00 collection accounts they cannot pay off one account
to come under the $1000.00. Both accounts must be resolved.
What this
means to a buyer is that if you have been pre-qualified you may now have
to pay off collection accounts to get approved for an FHA loan.
However, this is by no means a deal breaker. Just think if you had collections
in excess of $1000 as many do, you can now still move forward with purchasing a
home.
Previously,
FHA would hold off on consumers who had simple disputes showing. Also
whenever there were derog accounts or technical data that was wrong, a consumer
could not address such things as proof of residency, proof of ID along with
disallowing a consumer from requesting a verification of balance on a revolving
account were just some of the previous consequences of being placed in dispute
status. Not being placed into one lump category just because there are
disputes, now gives the consumers a fighting chance to proceed.
This is
going to impact all FHA borrowers. This goes into
effect April 1st unless it gets kicked out. Below is an actual snippet of
the mortgage e-letter from FHA.
OLD
GUIDANCE
If the
credit report reveals that the borrower is disputing any credit accounts or
public records, the mortgage application must be referred to a DE underwriter
for review. The following is an actual snipit from the mortgage Eletter
from the FHA–
Upfront
Mortgage Insurance is increasing from 1.0% to 1.75% and increasing the Annual
MI by 10 basis points or 0.1%.
NEW
GUIDANCE
If the
Automated Underwriting System using the TOTAL Mortgage Scorecard rates the
mortgage loan application as an 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. To view this document in its entirety here:
http://portal.hud.gov/hudportal/documents/huddoc?id=12-03ml.pdf
