FHA Approvals

I had planned on blogging about something else today, but after a Pre-Approval that I did this morning, I decided that I would blog about that instead, because the results just floored me.

Over at least the last six months I have not been able to get an Approved/Eligible though DU (Direct Underwriting) Automated Underwriting System for FHA Loans (FHA TotalScore Card) with ratio's of more than a 38/52.  This has been the case even for Borrowers with Credit Scores in the 700's and with one to three months of reserves in the bank.  That was until this morning.

This morning I got a call from one of the Realtors that I work with needing me to do a Pre-Approval on one of her Buyers that needed a Pre-Approval Letter today in order to submit an offer on a house.  I contacted the Buyer and went through my normal procedure which is to look at credit and income first, and if that looks OK to then go on from there, and take a full application so that I can run it through Automated Underwriting (DU).

When I ran the credit I got my first red flag, the middle credit score was under 620, and even though FHA does not have a minimum credit score requirement, our investors have a minimum of 620.  This was a concern but this buyer had a credit card that was over the credit limit and another one that was almost maxed out.  It wasn't going to take much money to bring them both to about 1/3 of the card limits, so I knew I could quickly get the score up 20 - 40. 

I then went on to take the rest of the information to complete the application, and the Buyer did have a couple of strong points. There were no lates in the last 12 months and had money in the bank for at least six months of reserves.  When I finished I took a second look at everything before running it through DU.  The Buyers ratio's were 43/55, this was not good, and given my recent experience, there was NO WAY that this was getting an Approve/Eligible.  But I do not leave anything up to my opinion, so I prepared the Buyer for want I was expecting to get while I was running it through DU.  What I saw next was a shock, and I was speechless for several seconds (which for me is amazing ... LOL), on the screen it read Approved/Eligible.

I could not believe it then, and I still cannot believe it now while I am writing this.  The only conclusion that I can come up with is that DU really liked the fact that the Buyer had six months of money in reserve, and that FHA is easing up on their Automated Underwriting standards.  In any case, if FHA is increasing their qualifying ratio's this will open the door for a whole lot more Buyers.  This might have been a fluke, but it will not take long to see if it was or not.  As I Pre-Approve buyers in the future I will be able to determine quickly if it was a fluke or not.  If it isn't, it is going to have a big impact on the number of Buyers that will be able to qualify in the future.

So here we go with the ever changing world of mortgage lending.  Hey I bet that would make a good new TV show :)

 

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com