December 16, 2013
The FHA and HUD have issued a press release announcing changes to come FHA loan policies that involve manually underwritten loans. According to HUDNo.13-188, the changes in policy are designed to help participating FHA lenders more objectively review creditworthiness and assist in loan approval to qualified borrowers.
According to the press release, “New manual underwriting requirements announced today are intended to encourage lenders to use a defined set of objective standards and ‘compensating factors’ in order to make responsible, risk-based underwriting decisions.”
“In addition, FHA’s manual underwriting guidance addresses loan characteristics such as high debt-to-income ratios and a lack of financial reserves that can result in high rates of default and foreclosure.”
“We want to provide revised guidance for our lenders so that they are confident in offering affordable mortgage loans to responsible borrowers under a reasonable set of guiding principles,” said FHA Commissioner Carol Galante. “We hope to bring more certainty to the market by helping lenders apply a set of consistent underwriting standards.”
Who might require a “manually underwritten” FHA home loan? The press release explains that an automated system used to score FHA loan applications employs something called TOTAL, or the Technology Open to Approved Lenders Mortgage Scorecard. “The TOTAL Mortgage Scorecard evaluates borrowers based on credit scores and other loan factors. When TOTAL delivers a Refer scoring recommendation or when borrowers were not scored because they do not have credit scores, lenders are required to manually underwrite the borrower.”
The press release adds that the new FHA loan policy for manually underwritten FHA loans, “are reserve requirements for all manually underwritten borrowers, establishing maximum qualifying ratios based on credit score and compensating factors; and providing a revised list of acceptable compensating factors with objective documentation requirements for assessing these factors.”
These new requirements are scheduled to appear in a forthcoming FHA Mortgagee Letter. We’ll cover them in detail in future blog posts.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at www.FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: