Articles Published in: August 2013

August 20, 2013

New FHA Loan Guidelines For “Back to Work”

The FHA recently issued a mortgagee letter detailing new guidelines for lenders working with borrowers who have had financial setbacks that might not indicate their ability to make monthly mortgage payments or other financial obligations. According to FHA/HUD Mortgagee Letter 2013-26, “FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances.” The letter continues, “As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively | more...

August 19, 2013

FHA Revises Loan Policies For Credit Issues Related to Unemployment, Economic Hardship

By Joe Wallace

The FHA has issued a new mortgagee letter which revises its policies related to credit evaluation for FHA loan approval. FHA Mortgagee Letter 2013-26 says the FHA is committed to helping borrowers who need FHA mortgage loans who may have financial difficulty due to reduced or terminated employment, bankruptcy, and other financial difficulties. “FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances. As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre- foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts.” Mortgagee Letter 2013-26 continues | more...

August 16, 2013

FHA Updates Loan Rules On Credit, Collections, and Judgments

By Joe Wallace

A recent reader question asked, “I have an outstanding judgment in the amount of $8000. Can I still get a loan?” FHA loan rules are clear on the issue of credit, stating that past credit performance and patterns are considered one of the best indicators of whether an FHA loan application should be approved. But recently, the FHA has issued clarifications and updates to lenders on the subject of judgments, collections and other activities that could be considered negative credit data. According to FHA Mortgagee Letter 2013-24, Handling of Collections and Disputed Accounts, the FHA has amended its guidelines and policies for collections, disputed accounts, and judgments for most credit-qualifying FHA loan transactions. It applies to all affected FHA loans with case numbers assigned on or after October 15, | more...

August 15, 2013

FHA Extends Unemployment Foreclosure Avoidance Program Indefinitely

By Joe Wallace

The FHA has extended a program designed to help unemployed borrowers avoid FHA loan default and foreclosure. A recent FHA mortgagee letter announced, “the extension of the unemployment special forbearance policies detailed in Mortgagee Letter 2011-23, Unemployment Special Forbearance: Temporary Program Changes and Clarifications.” This program allowed FHA borrowers, “having trouble making their mortgage payments due to unemployment postpone or reduce their monthly mortgage payment while they look for work” according to a letter by Assistant Secretary For Housing Carol J. Galante, who also writes, “Beginning in August 2011, HUD required FHA servicers to offer suspended or reduced payments for at least 12 months or until the struggling borrower found a job.” That FHA loss mitigation program was set to expire August 1, 2013. But now, that program has been | more...

August 15, 2013

FHA Mortgage Insurance Rules Update

By Joe Wallace

The FHA rules for mortgage insurance changed when the FHA and HUD issued Mortgagee Letter 2013-04, which featured, “Revision of Federal Housing Administration (FHA) policies concerning cancellation of the annual Mortgage Insurance Premium (MIP) and increase to the annual MIP”. All of the scheduled changes to the MIP rules have taken place. Among the major features of those changed rules? According to the introductory paragraphs of the FHA/HUD mortgagee letter: “Consistent with FHAs ongoing efforts to strengthen the Mutual Mortgage Insurance Fund, FHA is: revising the period for assessing the annual MIP; removing the exemption from the annual MIP for loans with terms of 15 years or less and Loan to Value (LTV) ratios of less than or equal to 78 percent at origination; and increasing the annual MIP on | more...

August 14, 2013

FHA Loan Answers: Is There Ever an Automatic Rejection of an FHA Loan Application?

By Joe Wallace

FHA loan rules include certain “automatic” rejections of an FHA loan application. For most typical borrowers these factors may not be an issue, but it is a question that arises from time to time: what circumstances force an automatic rejection of an FHA loan application? Here’s one example from the FHA loan rulebook, based on FHA FICO score requirements: That table indicates that a borrower with a FICO score of less than 500 is not eligible for an FHA mortgage. But there are other circumstances which may also result in an automatic rejection of the loan application. HUD 4155.1 Chapter Four, Section A has a heading titled, “Mandatory Rejection of a Borrower” and states: “A borrower is not eligible to participate in FHA-insured mortgage transactions if he/she is suspended, debarred, | more...

August 13, 2013

FHA Loan Reader Questions: Buying a Home With a Power of Attorney or Attorney In Fact

By Joe Wallace

A reader asks, “Can I use an AIF to apply for a mortgage loan in my absence? Namely fill out entirely on his own and sign the Uniform Residential Loan Application?” We’re assuming by using the acronym “AIF” the reader means “attorney in fact”. A search of the FHA loan rules in HUD 4155.1 reveals nothing specifically about using an attorney in fact, but FHA loan rules that cover who is permitted to sign the documents committing a borrower to the FHA loan are very clear. Chapter One, Section B of HUD 4155.1 states: “All borrowers applying for the mortgage and assuming responsibility for the debt must sign Fannie Mae Form 1003, Uniform Residential Loan Application (URLA), and all addenda. Either the initial loan application or the final, if one | more...

August 12, 2013

FHA Loan Questions: Applying For a Loan Following a Chapter 13 Bankruptcy

By Joe Wallace

A reader asks, “I was just released from Chapter 13 Bankruptcy and I would like to buy a house. What do I have to do to achieve this? My credit score is 635, 635 and 643.” FHA loan rules printed in HUD 4155.1 state that simply having a Chapter 13 bankruptcy does not disqualify you from getting an FHA loan, but there are certain standards a borrower needs to meet which must also be documented by the lender. Specifically, HUD 4155.1 Chapter Four Section C states, Chapter 13 bankruptcy”does not disqualify a borrower from obtaining an FHA-insured mortgage provided that the lender documents that: • one year of the pay-out period under the bankruptcy has elapsed • the borrower’s payment performance has been satisfactory and all required payments have been | more...

August 9, 2013

FHA Loan Answers: Tax Documentation

By Joe Wallace

One question many borrowers have about applying for an FHA loan for the very first time involves the type of documentation a lender may require for loan approval. The tax question is a common one–do FHA loan rules require the borrower to furnish tax documentation in addition to other credit-qualifying details? According to HUD 4155.1 Chapter One Section B, “The lender must obtain federal income tax returns for the most recent two years, both individual and business, including all applicable schedules, for self-employed borrowers, and individual federal tax returns for commissioned individuals.” As you can see, not everyone may be required to supply tax data, but for those who are required, there are additional rules that may apply. “The lender must obtain signed forms IRS 4506, IRS 8821, Tax Information | more...

August 8, 2013

FHA Loan Answers: Employment Verification by Fax or Internet

By Joe Wallace

When applying for an FHA home loan, your loan officer is required to verify your employment history–current and former–as a condition of loan approval. Some borrowers live and work in the same area for extended period of time, while others may have crossed the country to accept new employment or even transitioned from overseas locations to stateside (as is often the case with military families and other government employees). In such cases, how does the lender verify employment? It may not be practical for the borrower to return to an old office or workplace to request verification and telephone or emailed requests for mailed documentation may not be done as quickly as needed. Can the lender or borrower request a faxed document from an old employer instead? Here’s what FHA | more...