|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.|
• 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)
• 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.
Wednesday, October 23, 2013
Important FHA Changes
Posted by Justin Lee Thayer