FHA has recently released their latest Mortgagee Letter (2013-24). These changes take effect on October 15, 2013.
Mortgagee Letters are how FHA makes changes in their underwriting guidelines.
Consistent with the news from FHA since 2008 – this isn’t necessarily good news if you are trying to get an FHA mortgage.
Change 1: If you and your spouse (even if your spouse isn’t on the loan) has combined collections totaling over $2,000 we must take 5% of the aggregate balance of your collections and ad this amount to your monthly debt to income ratio.
Change 2: Traditionally FHA has always required judgments to be paid off prior to approval. Now they are allowing the following exception: An exception to the payoff of a court ordered judgment may be made if the borrower has an agreement with the creditor to make regular and timely payments. The borrower must provide a copy of the agreement and evidence that payments were made on time in accordance with the agreement, and a minimum of three months of scheduled payments have been made prior to credit approval.
Note: Just because FHA is ok with the payment plan doesn’t necessarily mean your lender will. You will have to check on this.
Change 3: This is a three parter regarding disputed accounts.
A. If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a “Refer” and a Direct Endorsement underwriter is required to manually underwrite the loan as described above.
B. If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade (to manual) is not required.
C. Disputed medical accounts are excluded from the $1,000 limit and do not require documentation.
Disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use are also excluded from the $1,000 limit. However, the lender must provide in the case binder a credit report, letter from the creditor, or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges.
Note: Non-derogatory disputed accounts are excluded from the $1,000 cumulative total. Non-Derogatory Disputed Accounts and Disputed Accounts Not
Indicated on the Credit Report. Non-derogatory disputed accounts include the following types of accounts: disputed accounts with zero balance, disputed accounts with late payments aged 24 months or greater, and disputed accounts that are current and paid as agreed.
That’s it for today!
Have a good day today! …and thanks for reading.
Brett
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