New FHA-Insured Loan Guidance Effective 7/1/2012

New FHA-Insured Loan Guidance

**Update: Mortgagee Letter ML 12-10 rescinded these changes.**

In Mortgagee Letter ML 12-3 FHA released updated loan guidance which slightly modified credit-qualifying criteria.  These changes are to take effect for case numbers assigned on or after July 1, 2012.

Collection Accounts:

Old Guidance: FHA Does not require that collection accounts be paid off.

New Guidance:  If the total aggregate balance of collection accounts is greater than or equal to $1000, the borrower must “resolve” the accounts or pay them in full prior to or at the closing.  “Resolve” means entered into a payment arrangement and can document at least three months of on-time payments. The payments for Resolved accounts must be included in the borrower’s DTI.

NOTE: Paying down balances to below an aggregate of $1000 is not acceptable.

Disputed Accounts/Public Records:

Old Guidance: If the credit report reveals that the borrower is disputing any credit accounts or public records, the mortgage application must be referred to a DE underwriter for review.

New Guidance: If the Automated Underwriting System using the TOTAL Mortgage Scorecard rates the application as an Accept, the mortgage application will not be referred to a DE underwriter for review due to the disputed accounts if the accounts meet BOTH of the following conditions:

·        The aggregate balance of all disputed accounts/collections are less than $1000

·        The disputed accounts/collections are more than two years old as indicated by the date of last activity on the most recent credit report.

If the borrower has one or multiple disputed credit accounts/collections with singular or aggregate balances equal to or greater than $1000, then the requirements are the same as posted above in the Collection Accounts section.

Disputed credit accounts/collections resulting from identity theft, credit card theft or another form or unauthorized use will be excluded from the $1000 limit.  Documentation must be provided to support that the accounts were the result of unauthorized use such as a filed identity theft report or police report.