Per FHA Mortgagee Letter 2012-03, FHA will be adopting a few more changes effective 04/01/2012. One of the changes is regarding collection accounts. This could impact many borrower’s ability to qualify or possibly delay a borrower in qualifying for the FHA loan.
OLD Guidance NEW Guidance
HUD 4155.1 4.C.2.e
FHA does not require that collection accounts be paid off as a condition of mortgage approval. However, court-ordered judgments must be paid off before the mortgage loan is eligible for FHA insurance endorsement.
If the total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts (e.g. entered into payment arrangements with minimum three months verified payments- paid as agreed) or paid in full at the time of, or prior to closing. Mortgagees must document the case binder showing each account was resolved or paid in full.
If the total outstanding balance of all collection accounts is less than $1,000, the borrower is not required to pay off the collection accounts as a condition of mortgage approval.
FHA continues to require judgments to be paid off before the mortgage loan is eligible for FHA insurance.*
* 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, and provides documentation indicating that a minimum of three months payments have been made according to the agreement. The monthly payment must be included in the borrower’s debt-to-income ratio.
Examples of acceptable documentation to support the resolution of disputed accounts or the payoff of accounts would be a letter from the creditor outlining the terms of the payment arrangements, or verifying payoff of debt, cancelled check(s), or a supplement to the credit report verifying payoff or payment arrangements.
Note: Paying “down” of balances on disputed accounts and collections to reduce the singular or cumulative balance to below $1,000, is not an acceptable resolution of accounts.
For more information please contact DOUG CAPPS at (662) 429-5100 ext. 105. NMLS ID #68160.
Fairway Independent Mortgage Corporation, 224 West Commerce St, Hernando, MS 38632 is a "MS and TN Licensed Mortgage Company." NMLS ID #2289. An Equal Housing Lender. All loans are subject to credit approval and compliance with investor guidelines. Fairway Independent Mortgage Corp is not affiliated with USDA Rural Development.
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