Showing posts with label Disputed Accounts. Show all posts
Showing posts with label Disputed Accounts. Show all posts

FHA Mortgage Manual Underwriting Video Guidelines

We have the expertise to manually underwrite even the most difficult Kentucky  FHA Mortgage loans. Whether it’s purchase or refi—we work hard to approve what other lenders won’t. 


Did you know over 50% of our Kentucky  FHA loans are manual underwrites?


Kentucky FHA will consider the borrower’s entire story, including extenuating circumstances and compensating factors, to justify loan approvals. If your borrower falls under any of these conditions, they may benefit from manual underwriting:

  • Non-traditional credit / lack of credit
  • True extenuating circumstances affecting credit or income history
  • Lack of seasoning on a Chapter 13
  • Disputed accounts over $1,000
  • Frequent job changes in the last 12 months

If you think your borrower could benefit from  manual underwriting call us to learn more about manual underwriting or submit your scenario today.

Lowest Minimum Decision Credit Score Maximum Qualifying Ratios (%) Acceptable Compensating Factors
All manual underwritten loans require a VOR.
If the borrower does not pay rent a letter of explanation from borrower stating where living rent free.
620 & Above
• No compensating factors required.
• Energy Efficient Homes may have stretch ratios of 33/45.
620 & Above
One of the following:
• Verified & documented cash reserves equal to at least three total monthly mortgage payments.
• New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and there is a documented twelve-month housing payment history with no more than one thirty-day late payment.
• Residual Income per VA chart.
620 & Above
• Borrower has established credit lines in his/her own name (open for at least six months) but carries no discretionary debt (monthly total housing payment is only open installment account and borrower can document that revolving credit has been paid off in full monthly for at least the past six months).
620 & Above
Two of the following:
• Verified & documented cash reserves equal to at least three total monthly mortgage payments.
• New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and there is a documented twelve-month housing payment history with no more than one thirty-day late payment.
• Verified and documented significant additional income that is not considered effective income and likely to continue (part-time or seasonal income verified for more than 1 year but less than 2 years). The income if it were included in gross effective income is sufficient to reduce the qualifying ratios to not more than 37/47.
• Residual Income per VA chart.

Residual Income
Calculating Residual Income
Residual income is calculated in accordance with the following:
• Calculate the total gross monthly income of all occupying borrowers
• Deduct from the gross monthly income the following items:
➢ State income taxes
➢ Federal income taxes
➢ Municipal or other income taxes
➢ Retirement or Social Security
➢ Proposed total monthly fixed mortgage payment
➢ All recurring monthly debt obligations
➢ Estimated maintenance and utilities ($0.14 x sq. ft.)
➢ Job related expenses (e.g., child care)
• The difference between the gross monthly income and the deductions above is the residual income
Compensating Factors
Using Residual Income as a Compensating Factor
Count all members of the household of the occupying borrowers without regard to the nature of their relationship and without regard to whether they are joining on title or the note.
Exception: As stated in the VA Guidelines, the mortgagee may omit any individuals from “family size” who are fully supported from a source of verified income which is not included in the effective income in the loan analysis. These Individuals must voluntarily provide sufficient documentation to verify their income to qualify for this exemption.
From the table below, select the applicable loan amount and household size. If residual income equals or exceeds the corresponding amount on the table, it may be cited as a compensating factor.

Kentucky FHA Mortgage  Manual Undewriting Guidelines for FHA Mortgage Refer Eligible or Manual Downgrades

Accept Risk Class required downgrade to Manual Underwriting

The Mortgagee must downgrade and manually underwrite any mortgage that received an accept or approve/eligible recommendation if:
• The mortgage file contains information or documentation that cannot be evaluated by TOTAL.
• Additional information, not considered in the AUS recommendation affects the overall insurability of the mortgage.
• The borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts.
• The date of the borrower’s bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of the case number assignment.
• The case number assignment date is within three years of the date of the transfer of title through a Pre-Foreclosure Sale (Short Sale).
• The case number assignment date is within three years of the date of the transfer of title through a foreclosure sale.
• The case number assignment date is within three years of the date of the transfer of title through a Deed-in-Lieu (DIL) of foreclosure.
• The Mortgage Payment history, for any mortgage trade line reported on the credit report used to score the application, requires a downgrade as defined in Housing Obligations/Mortgage Payment History.
• The Borrower has undisclosed mortgage debt that requires a downgrade.
• Business income shows a greater than 20 percent decline over the analysis period.

• Per AUS Findings.
FHA FAQ link
ML 2014 – 02 on Manual Underwriting was incorporated into the HUD Handbook 4000.1. Additional source for questions will be the FAQ’s. Use “manual underwriting and compensating factors” to searcH

Disputes on Credit Report and Kentucky Mortgage Loan Approval?

Applying for a Kentucky Mortgage Soon?
Don't Dispute that Account

     Sounds counterintuitive, I'm sure ...

     But until you've talked to me (or your own local Mortgage Originator), don't even think about disputing an account found on your Credit Report.

     Why?  Unknowingly, you can be creating real problems for your Mortgage Application and Approval. 

     Consider this:  A creditor can refuse to change their disputed rating.  Too many disputed accounts on a Credit Report may result in your loan being denied.

     Is that a really a risk you want to run at such an important time?

     A formal dispute placed on a car loan, student loan, credit card, collection ... or even worse, a mortgage loan ... can cause havoc for your new Mortgage Application.  So ...

     Slow down.  Contact me ... and let's talk.  We'll analyze all your options and see what action is appropriate and in your best interest.  

     What is not commonly known:  Credit Bureaus and Automated Underwriting systems now reflect an evolution that has taken place over the last few years regarding credit disputes.  

     Both the Bureaus and Underwriting systems have been re-worked to recognize disputes as a negative impact and rating on a Borrower's "approvability" or "credit-worthiness".  

     But these changes have taken place without much fanfare and public recognition.  And because of that, hopeful Borrowers have all too often been contributing to the issues faced within their Mortgage Process later.     

     Prospective Mortgage Applicants (and the public in general) must be educated to this fact.  The temptation to dispute an account must be avoided, if hoping to finance a home via a Mortgage Loan soon.       

     If a Creditor offers-up a path to formally dispute your account ... just say no!  At least prior to our talking.

     There may be a better course of action available to you.  During our conversation we'll weigh your options and best course as it pertains to your Mortgage and your Approval.  

     But providing solid, written proof and evidence regarding your stance on the account in question, WITHOUT placing a formal "dispute" on said account is often the most prudent course of action ... 

     Remember:  You must have legitimate data and written proof in order to accomplish your goal successfully.  But when you have that proof, your account can be "re-rated" or the derogatory rating can be deleted from your Credit Report. 

     Any "correction" should come from the Creditor (Credit Card company/bank/etc.) and immediately sent to each of the 3 Credit Bureaus (ExperianTransUnionEquifax).  

     This final step trips-up way too many, as it's assumed that the Creditor(s) will share the new updated information with the 3 Credit Bureaus.  They may or may not.  

     Bottomline:  It remains YOUR responsibility to inform each of the 3 Bureaus.  

     Play it safe and follow through with this important task, as it's in your best interest to see that it's successfully done.   

     When a correction is reported to the Bureaus, they will, in turn, update your Credit Report.  While each case is different (and I do not represent that all results will be successful or as hoped for) ... you may head off potential issues with your Mortgage Approval by acting pro-actively.  Consult with a Credit Repair Specialist if uncertain of corrective steps to be taken.

     In the modern Mortgage Process, the experience level of the Mortgage Originator you choose can't be understated.  Successful navigation through the steps of addressing credit disputes and credit analysis is just one example of this fact.

Disputes on Credit Report and Kentucky Mortgage Loan Approval?



FHA recently released Mortgagee Letters 2013-24 and 2013-25, to amend guidance on collections and disputed accounts and to clarify guidance on judgments. These changes will become effective for all case numbers assigned on or after October 15, 2013. This will apply to all FHA programs, with the exception of non-credit qualifying streamline refinances and Home Equity Conversion Mortgages. The changes are found below. Should you have any questions, please contact your Account Manager.
1.           Credit Analysis of Collections and Judgments. Collections and judgments may indicate a borrower's disregard for credit obligations and must be considered in the creditworthiness analysis. The guidance below applies to loans with collection accounts and all judgments. Medical collections and charge off accounts are excluded from this guidance.
  • Applicable to Manually Underwritten Loans: The lender must document reasons for approving a mortgage when the borrower has collection accounts or judgments.
Regardless of the amount of outstanding collection accounts or judgments, the lender must determine if the collection account or judgment was a result of:
    • The borrower's disregard for financial obligations;
    •  The borrower's inability to manage debt; or
    • Extenuating circumstances.
The borrower must provide a letter of explanation with supporting documentation for each outstanding collection account and judgment. The explanation and supporting documentation must be consistent with other credit information in the file.
  • Applicable to Loans Run Through TOTAL Mortgage Scorecard: TOTAL Mortgage Scorecard Accept/Approve - There are no documentation or letter of explanation requirements for loans with collection accounts or judgments run through TOTAL Mortgage Scorecard receiving an "Accept/Approve" despite the presence of collection accounts or judgments. These accounts have been already taken into consideration in the borrower's credit score. If TOTAL Mortgage Scorecard generates a"Refer," the lender must manually underwrite the loan in accordance with the guidance above applicable to manually underwritten loans with collection accounts and judgments. 
All medical collections and charge off accounts are excluded from this guidance and do not require resolution.
2.           Capacity Analysis of Collections and Judgments.
Collections - FHA does not require collection accounts to be paid off as a condition of mortgage approval. However, FHA does recognize that collection efforts by the creditor for unpaid collections could affect the borrower's ability to repay the mortgage. To mitigate this risk, FHA is requiring a capacity analysis of collection accounts with an aggregate balance equal to or greater than $2,000, as described below.
If the total outstanding balance of all collection accounts for all borrowers is equal to or greater than $2,000, the lender must perform a capacity analysis as detailed below. Unless excluded under state law, collection accounts of a non-purchasing spouse in a community property state are included in the cumulative balance.
All medical collections and charge off accounts are excluded from this guidance and do not require resolution.
Capacity analysis includes any of the following actions:
  • At the time of or prior to closing, payment in full of the collection account (verification of acceptable source of funds required).
  • The borrower makes payment arrangements with the creditor. If the borrower has entered into a payment arrangement with the creditor, a credit report or letter from the creditor verifying the monthly payment is required. The monthly payment must be included in the borrower's debt-to-income ratio.
  • If evidence of a payment arrangement is not available, the lender must calculate the monthly payment using 5% of the outstanding balance of each collection, and include the monthly payment in the borrower's debt-to-income ratio.
TOTAL Mortgage Scorecard Accept/Approve/Refer - Regardless of the Accept/Approve/Refer recommendation by TOTAL Mortgage Scorecard, the lender must include the payment amount in the calculation of the borrower's debt-to-income ratio.
               Judgments - FHA requires judgments to be paid off before the mortgage loan is eligible for FHA insurance. 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.
Borrowers are not allowed to prepay scheduled payments in order to meet the required minimum of three months of payments. Furthermore, lenders are instructed to include the payment amount in the agreement in the calculation of the borrower's debt-to-income ratio.
FHA requires judgments of a non-purchasing spouse in a community property state to be paid in full, or meet the exception guidance for judgments above, unless excluded by state law.
    3.           Handling of Disputed Accounts - The existence of potentially inaccurate information on a borrower's credit report resulting in a dispute must be reviewed by an underwriter. Accounts that appear as disputed on the borrower's credit report are not considered in the credit score utilized by TOTAL Mortgage Scorecard in rating the application. Therefore, FHA requires the lender to consider them in the underwriting analysis as described below.
With this ML, FHA is revising policy on manual downgrades for applications with disputed accounts to reflect the risk associated with derogatory and non-derogatory disputed accounts for factors such as age and size of outstanding balance.
Disputed Derogatory Accounts Indicated on the Credit Report - If the credit report utilized by TOTAL Mortgage Scorecard indicates that the borrower is disputing derogatory credit accounts, the borrower must provide a letter of explanation and documentation supporting the basis of the dispute. The lender must analyze the documentation provided for consistency with other credit information in the file to determine if the derogatory credit account should be considered in the underwriting analysis.
Guidance for TOTAL Mortgage Scorecard Accept/Approve loans with disputed accounts.
Disputed Derogatory Credit Accounts greater than or equal to $1,000
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.
Disputed Derogatory Credit Accounts less than $1,000
If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade is not required.
Excluded Accounts
  • 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.
Disputed derogatory credit accounts are defined as follows:
  • disputed charge-off accounts,
  • disputed collection accounts, and
  • disputed accounts with late payments in the last 24 months.

Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a "Refer".
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.
 If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the lender is not required to downgrade the application to a "Refer." However, the lender must analyze the effect of the disputed accounts on the borrower's ability to repay the loan. If the dispute results in the borrower's monthly debt payments utilized in computing the debt-to-income ratio being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments.
If you have loans pending that these changes will affect, be sure to order the FHA case number prior to October 15, 2013.

Disputed Accounts On Credit Report and how it effects FHA Loans

Apply For FHA Mortgage Loan in Kentucky

Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell

Fill out my form for mortgage pre-approval by clicking this link!

Can you get a Kentucky Mortgage Loan with Bad Credit or less than Perfect Credit?

Kentucky Mortgage Loan with Bad Credit

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If you are looking to get a mortgage loan in 2020 in the state of Kentucky and you have past credit problems, there maybe some hope for Kentucky Home-buyers to buy a home of their own.

 Before we look at some possible home-buying programs, let's first look at what is considered Bad Credit, or less than perfect credit. 

Most of the times when borrowers say they have bad credit, they mean one of the following:

Past or Current Bankruptcies
Low credit scores or fico scores
Collections on credit report showing unpaid or paid.
Delinquent or behind on credit cards, mortgage, car loan payments
Foreclosure or short sale where they lost a home to default
Owe back taxes to the Federal Government.
Defaulted Student Loans
Delinquent Child Support Obligations
Disputed accounts on credit report

Below I have listed one of the most popular programs Kentucky Home Buyers need to consider when buying a home in 2020 if they have experienced some of the credit issues mentioned above:

When it comes to getting a mortgage loan with past credit problems, FHA is probably going to be your best bet.

They're the most lenient on credit scores, down payment requirements and credit history when it comes to qualifying for a Kentucky Home Loan.

I have listed below some of the requirements you must overcome to get approved for a Kentucky FHA home loan.

Kentucky FHA Mortgage Loans:

The credit score requirements for Kentucky FHA home loans:

FHA says on paper in their written guidelines that they will insure a FHA loan down to 500 - 579 with a 10% down payment or 580+ with a 3.5% down payment. However, in the real world of lending in the secondary market, most lenders will not adhere to these guidelines.
Most FHA investors will want a 620 middle credit score, but they're a few that will go by the written FHA guidelines above for credit scores, but very few. Your best bet is to get with a loan officer and get your scores up to at least 580 so you can have a better shot of getting approved and access to more FHA lenders.

Be aware there are a lot of credit scores out there, but each lender must pull their own credit report and credit scores to determine your creditworthiness. I would shop around first to see what the requirements are for each FHA lender before they pulled your credit report.

Mortgage lenders use the FICO score model below for each credit bureau when they look at your credit scores.

MyFICO is now selling additional score versions to the public.  These include three scores most often used by mortgage lenders:
  • Experian FICO Score 2  (also known as EX-98 or Risk Model v2)
  • Transunion FICO Score 4  (also known as TU-04 or Transunion FICO Risk Score Classic 04)
  • Equifax FICO Score 5  (also known as EQ-04 or Beacon 5).  

Bankruptcy Requirements for Kentucky FHA Home Loans:

FHA states in their published guidelines that if you had a Chapter 7 Bankruptcy, you must wait 2 years from the discharge date to reapply for a FHA insured mortgage loan. 

If you had a Chapter 13 Bankruptcy and have a 12 month on-time payment history with the courts, you can potentially get approved for a FHA loan if you get permission from the trustee and qualify with the Chapter 13 payment plan in your debt to income ratio. If you have been in the plan for over 12 months, and have a good pay history, you can submit your paperwork for FHA approval. 

For example, let's say you have been in the Chapter 13 repayment plan for 3 years and you want to buy a home using FHA financing. You could go ahead and petition the Chapter 13 trustee for approval from the courts to get a home loan. The trustee of the Chapter 13 courts will want to know your new loan payment with the home loan, so make sure you know how much  you want to borrow before you apply ,. 

Collections on Credit Report Requirements for Kentucky FHA Home Loans:
  • If the credit report shows a cumulative balance of $2,000 or more for collection accounts: 
  • The debt(s) must be paid in full prior to or at closing, or 
  • Payment arrangements must be made with the creditor and the monthly payment included in the DTI, or 
  • A monthly payment of 5% of the outstanding balances of each collection must be included in the borrower’s DTI. 
  • Collection accounts of non-borrowing spouses 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. Community property states are Arizona, California, Texas, Washington, and Wisconsin
  • Medical collections and charge offs are excluded from this
    guidance.B. Judgments – Loans for borrowers with outstanding judgments are
    generally not acceptable unless the following documentation is obtained.
    a. Judgment must be on the credit report that is linked to the TOTAL
    Scorecard findings and the findings must be “approve/eligible” or
    b. If the judgment will not be paid off and released prior to the
    closing, evidence of a payment agreement may be considered. The
    payment agreement must be in writing and provided at the time of
    underwriting. Crescent will require evidence that 12 months
    satisfactory payments have been made as scheduled. Borrowers
    may not pre-pay scheduled payments in order to meet this
    requirement. The monthly payment must be considered in the
    borrower’s debt-to-income ratio for qualifying.
    c. Any judgments that are discovered in the processing of the loan
    that ARE NOT on the credit report linked to the TOTAL findings
    require the loan to be manually downgraded to “refer” status.
    Crescent does not approve loans that must be manually
    d. A subordination agreement will be required for any judgment that
    is also a lien against the borrower and/or the subject property.
    C. Disputed Accounts – Because disputed accounts are not generally
    considered in the borrower’s credit report FHA will now require loans of
    borrowers who have derogatory disputed accounts with cumulative
    balances of $1000 or more (excluding medical) to be downgraded to
    “refer” findings and manually underwritten. As you are aware, Crescent
    does not approve loans that require manual underwriting.
    NOTE 1: Disputed derogatory credit account of a non-purchasing spouse
    in a community property state are not included in the cumulative balance
    for purposes of determining if the mortgage application must be
    downgraded to a “refer.”
    NOTE 2: Disputed medical collections are excluded from the $1000 limit
    as are derogatory credit accounts resulting from identity theft, credit theft
    unauthorized use, etc. However, documentation must be provided to
    conclusively support the disputed status. Documentation might entail
    police reports, letters from the creditor, etc.
    II. ML 2013-26 – Back to Work-Extenuating Circumstances
    The guidance provided in ML 13-26 requires loans to be manually
    underwritten. For this reason Crescent cannot approve loans that need these
    credit underwriting leniencies. III. ML 2013-29 – Application of Unused Funds from

Short-sale or Foreclosure Guidelines for a Kentucky FHA Loan:

If you have experienced a short-sale or foreclosure, FHA states that you must wait 3 years from the date of the sale to obtain FHA financing again. And important note is this: The waiting period starts not when you were discharged from the home or bankruptcy, the waiting period starts when the home is sold and the deed transferred at the courthouse. 

This is important to remember because a lot of people think it starts when they vacate the home or when there bankruptcy is discharged if the mortgage was in the bankruptcy, but it does not!!! The date used to end the waiting period starts when the deed is transferred at the courthouse from the owner to back to bank or whomever buys the home in the default. 

Delinquent Federal Debt (Taxes, Student Loans) Kentucky FHA Loan Requirements:

If you have a delinquency with the Federal Government, this could hurt your chances of getting approved for a FHA backed Mortgage Loan. Here is why:

All FHA participants are ran through the CAVIRS Alert System administered by HUD to check to see if the mortgage applicant is delinquent  to the Federal Government. This usually arises from an IRS income tax lien, over-payment on a social security claim, or lastly, a defaulted student loan. 
A lot of the times FHA borrower don't realize that if they don't pay there Federal backed student loans, they go into default and this will hold you up from getting a FHA loan or possibly they will hold your tax refund. 

If you have been delinquent on your student loans, you have to call and get on a 9 month repayment plan with them and they will clear you of your CAVIRS Alert. The payment plan can be as little as 5 or $10 a month, but the important thing is to get started so this will improve your credit rating too along with releasing the liens against you for other federal assistance like tax refunds, social security payments and benefits to name just a few. 

I have done many FHA loans in Kentucky where they have rehabbed their Student loans if they are backed by Federal government and got them loan after 9 months. 
If you happen to have an agreement already worked-out with the IRS or student loan creditors, sometimes we can take that arrangement and get you approved sometime with FHA depending on the lender. 

Child Support Obligations Kentucky FHA Loan Requirements:

If the credit report shows a delinquent child support agreement, the FHA Government Underwriter will want to see the current child support agreement and what the monthly payment is so as to make sure they have your debt to income ratio figured correctly. You can have a delinquency report of child support on your credit report and still get an FHA loan. 

 It is okay to be paying child support ,a lot of times it shows on a borrower's pay stubs, and if so, we simply use that child support obligation to use for debt to income ratio qualifying. 

As you can see, it is quite possible to buy a home in Kentucky with past bad credit. I work with a lot of mortgage applicants that has experienced credit issues in the past, but with the right direction and guidance, I can possibly get you into a home in 2020. 

Put my 20 years of Kentucky Mortgage Experience to work for you .
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
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
-- 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.

How to Dispute Credit Report Info

How to Dispute Credit Report Info

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FHA Announces Important Guideline Changes

FHA Announces Important Guideline Changes

The purpose of this Mortgagee Letter (ML) is to:

Modify documentation requirements for self-employed borrowers,
Provide new guidance on disputed accounts, and
Expand the current definition of family members for identity of interest

The new guidance in this section of the ML is effective for case numbers assigned on or after
April 1, 2012, and will apply to all FHA insured loans except non-credit qualifying
streamline refinance loans and Home Equity Conversion Mortgage loans.
Below is a matrix with old and new documentation requirements for self-employed

NEW Guidance for Self-Employed Income Borrowers

P&L and Balance Sheet required if more than a calendar quarter has elapsed since date of most recent calendar or fiscal-year end tax return was filed by the borrower – with no exceptions.Additionally, if income used to qualify the borrower exceeds the two year average of tax returns, an audited P&L or signed quarterly tax returns obtained from IRS are required.Same requirements as an“Accept”.

New Guidance for Disputed Accounts

If the Automated Underwriting System using the TOTAL Mortgage Scorecard rates the mortgage loan application as an Accept, the mortgage application will no longer be referred to a
DE underwriter for review due to disputed accounts, as long as these accounts meet both of the following conditions:The total outstanding balance of all disputed credit accounts or collections are less than $1,000,and Disputed credit accounts or collections are aged two years from date of last activity as indicated on the most recent credit report.If the borrower has individual or multiple disputed credit accounts or collections with singular or cumulative balances equal to or greater than $1,000, the accounts must be resolved (e.g. payment arrangements with a minimum three months of verified payments made as agreed) or paid in full, prior to, or at the time of closing. The lender must obtain documentation supporting the payment arrangements or that the debt has been paid off. The payments arranged for the accounts must be included in the calculation of the borrower’s debt-to-income ratios.

Disputed credit accounts or collections resulting from identity theft, credit card theft, or unauthorized use, etc., will be excluded from the $1,000 limit under the terms shown below.The mortgagee must provide in the case binder, a credit report or letter from the creditor, or other appropriate documentation,to support that the borrower filed an identity theft or police report to dispute the fraudulent charges. Mortgagees must
provide documentation in the case binder to show all disputed or collection accounts are resolved, verified as not a debt to the borrower, arrangements made for payment, or paid in full.

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.*

New Guidance for Identity of Interest Transactions

For the purpose of Identity of Interest transactions, the definition of family member includes:
child, parent, or grandparent spouse legally adopted son or daughter, including a child who is placed with the borrower by an authorized agency for legal adoption foster child brother, stepbrother sister, stepsisteruncle, and aunt Note: A child is defined as a son, stepson, daughter, or stepdaughter. A parent or grandparentincludes a step-parent/grandparent or foster parent/grandparent.
As stated in handbook HUD 4155.1 2.B.2.b, identity-of-interest transactions may result in a
reduced maximum loan-to-value limitation.

Joel Lobb (NMLS#57916)Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*

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