HUD rescinds July 1 Collections Requirement
According to our friend Jeannie Bolger, Sr. Loan Officer for Nova Home Loans:
Back in April the Federal Housing Administration announced they were going to change the requirements for all FHA buyers with $1000 or more in collections–anyone with unsettled, unpaid, or unresolved disputes–must be paid in full. The requirement was scheduled to start this Sunday, July 1st. But as of HUD’s June 15 Mortgagee Letter, they have rescinded the requirement.
What was the new July 1 requirement going to mean to home buyers who plan to use low-down-payment FHA financing, other than making it more difficult for everyone to get FHA loans? For one, it was going to complicate the process of qualifying for an FHA loan. (As if borrowers did already have enough problems with approval delays!). It would have likely reduced the qualifying amounts.
Unfortunately, many lenders wrongly pre-approve borrowers because the loan officer wasn’t paying close enough attention to things like these new, often overlooked collections requirements. This leads to borrowers getting denied on purchasing a home while they are still in escrow. Which means their earnest money is in danger of being lost.
All because of something most people are unaware of that’s tucked away in their national credit bureau files: Medical bills, old student loans, retail purchases, any debts reported as unpaid. It wouldn’t have mattered if these debts were incorrectly reported to collection agencies, or if the borrower had currently high credit scores and income.
[A company with a Direct Engagement (DE) underwriter has the ability to endorse the application package and approve the loan.]“Fortunately, these new collections requirements have been rescinded. The current guidelines are as follows”, said Jennie Bolger.
Collections:
Manually Underwritten Loans
Collections indicate a borrower’s regard for credit obligations, and must be considered in the creditworthiness analysis. The lender must document reasons for approving a mortgage when the borrower has collection accounts. The borrower must explain, in writing, all collections. FHA does not require that collection accounts be paid off as a condition of mortgage approval.
TOTAL Scorecard Accept/Approve Recommendation
Collection accounts trigger neither an explanation requirement nor a hypothetical monthly payment to be used in qualifying borrowers. The presence of collection accounts in the borrower’s credit history already result in lowering the credit bureau scores used in TOTAL and, thus, no further information need be provided by the borrower.
Disputed Accounts:
TOTAL Scorecard Accept/Approve Recommendation
If the credit report reveals that the borrower is disputing any credit accounts or public records, the loan must be downgraded to a manual underwriting review by a DE underwriter–
–unless any of the following circumstances apply to the disputed account:
o It has a zero balance
o It’s marked as “paid in full” or “resolved”
o It’s less than $500 and more than 24-months old
Nova Home Loans has a Credit Services Department that can—for free–assist you with any Collection, Charge-off, Disputed Account and Judgment questions; and help you get your FHA/HUD loan approved.
Please call Jeannie Bolger, Sr. Loan Officer for assistance.
Jeannie Bolger, Sr. Loan Officer
Licensed Mortgage Consultant #194387
Nova Home Loans
2850 E. Camelback Road, #270
Phoenix, AZ 85016
602-550-8674 Mobile
602-385-4812 Office
602-464-7322 Direct Fax
jeannie.bolger@novahomeloans.com
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