FHA has made changes to how Collections, Charge Offs, Judgments and Disputed Accounts are handled. These changes are effective as of October 15th, 2013. Please see below a summary of the FHA Mortgagee letters 2013-24 and 2013-25 and if you have any questions please contact us. Thank you. EFFECTIVE DATE • These new rules are applicable for FHA case numbers issued on and after October 15, 2013 COLLECTIONS AND/OR CHARGE OFF ACCOUNTS • Medical collections and/or charge offs are excluded from this guidance. • A letter of explanation from the borrower(s) is: | ||
- Not required for loans receiving an approved/eligible from FHA Total Scorecard (DU). | ||
• Payment plan | ||
- Must be considered if the aggregate balance of all outstanding collections | ||
o Medical collections are EXCLUDED from this aggregate. | ||
- One of the following actions MUST be taken if the aggregate from all borrowers is $2000 or higher. (Note: If borrower A total is $1500 and borrower B total is $600 the sum is over $2000 and therefore the guidance applies.) | ||
o Payment in full at or prior to closing (with the source of funds properly verified) | ||
JUDGMENTS • Applies to all loans, whether approved by Total Scorecard (DU) or manually underwritten. • All judgments (including medical) must be paid in full at or prior to closing. | ||
- An exception may be given if the borrower has entered into an agreement with the creditor. Full documentation of the payment agreement required AND a minimum of 3 months of scheduled payments have been made. Borrowers may NOT prepay the scheduled payments in order to satisfy the 3 month requirement. | ||
• Payments must be included in the DTI. • Unless exempt by State law, the judgments of a non-purchasing spouse, in a community property State, included in this guidance. DISPUTED ACCOUNTS - DEROGATORY INFORMATION ON THE REPORT • This category is used to determine if a manual downgrade to a loan is required, if the loan is approved by Total Scorecard (DU) and there are derogatory disputed items on the borrower’s credit report. • Derogatory disputed information is defined as: | ||
- Disputed collection accounts - OR | ||
• Excluded from the calculation are: | ||
- Disputed medical accounts. | ||
• Cumulative outstanding balances from all borrowers are $1,000 or higher the file must be downgraded to a “Refer”. (Note: If borrower A total is $500 and borrower B total is $600 the sum is over $1000 and therefore the guidance applies.) | ||
- The DE underwriter will then consider this derogatory disputed information in the credit analysis as a manual underwrite. | ||
• Cumulative outstanding balances from all borrowers are $999 or less, a downgrade is NOT required. DISPUTED ACCOUNTS - NON DEROGATORY INFORMATION ON THE REPORT • Non-Derogatory disputed information is defined as: | ||
- Disputed accounts with zero balance | ||
• Non-derogatory disputed accounts do NOT require a manual downgrade. • The DE underwriter IS required to consider the disputed accounts and the potential impact to the borrower’s ability to repay the loan, including the impact to the DTI. |
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