FHA eases mortgage rules for some credit-impaired applicants for collections and charge offs

FHA Collection Accounts
• A Collection Account refers to a Borrower’s loan or debt that
has been submitted to a collection agency by a creditor.
• Medical Collections are not required to be paid and satisfied.
• Collection accounts of a non-borrowing spouse in a
community property state must be included in the $2,000
cumulative balance and analyzed as part of the Borrower’s
ability to pay all collection accounts, unless specifically
excluded by state law.

If the credit reports used in the analysis show a cumulative
outstanding collection account balances of $2,000 or greater,
the Mortgagee must:
• Verify that the debt is paid in full at the time of or prior to
settlement using an acceptable source of funds;
• Verify that the Borrower has made payment arrangements with the
creditor and include the monthly payment in the Borrower’s DTI; or
• If a payment arrangement is not available, calculate the monthly
payment using 5 percent of the outstanding balance of each
collection and include the monthly payment in the Borrower’s DTI
ratio.

Collection Accounts: Documentation
• The Mortgagee must provide the following documentation:
– Evidence of payment in full, if paid prior to settlement; or
– The payoff statement, if paid at settlement; or
– The payment arrangement with creditor, if not paid prior to or
at settlement.
• If the collection account is to be paid off, the Mortgagee must
document that the funds being used for the pay off come
from an acceptable source.
• If the Mortgagee uses 5 percent of the outstanding balance,
no documentation is required.

Charge Off Accounts
• A Charge Off Account refers to a Borrower’s loan or debt that
has been written off by the creditor.
• Charge off accounts do not need to be included in the
Borrower’s liabilities or debt.

Additional Required Documentation for
Collection and Charge Off Accounts
• Mortgagee must determine if collection account was due to:
– The Borrower’s disregard for financial obligations;
– The Borrower’s inability to manage debt; or
– Extenuating circumstances.
• Mortgagee must document reasons for approving a mortgage
when the Borrower has any outstanding collection accounts.
This includes medical collections.
• Borrower must provide a letter of explanation, which is
supported by documentation, for each outstanding collection
account. This includes medical collections.

 

Joel Lobb (NMLS#57916)
Senior  Loan Officer

 

American Mortgage Solutions, Inc.

10602 Timberwood Circle Suite 3

Louisville, KY 40223

Company ID #1364 | MB73346

 

Text/call 502-905-3708
kentuckyloan@gmail.com

 

 

Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916 http://www.nmlsconsumeraccess.org/

 

— Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.