August 12, 2014
When you apply for an FHA loan, sometimes the hardest part is waiting to hear back from the lender that the loan has been approved and all can move forward. Did you know that FHA loan rules have a process for the lender to follow when the loan has been approved or denied?
HUD 4155.1 has the guidelines and instructions to the lender for loan approval or rejection. Chapter One of this document has a section called Borrower Approval Or Rejection and tells the lender that, when the loan has been approved, there are a set of steps to be followed. The lender:
• records the results of the credit analysis on the HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary
• enters any modification of the mortgage amount or approval conditions under “Underwriter Comments” on the form, and
• approves the borrower and authorizes closing, if the case is a Direct Endorsement case.”
Those are the instructions for what needs to happen within the financial institution, but FHA loan rules also state, “The lender is responsible for notifying the borrower of the approval, either in writing or verbally, immediately after receipt of the underwriter’s decision.”
For FHA loan approval, it’s as simple as that. But what about when a borrower has been turned down for an FHA mortgage loan? Chapter One of HUD 4155.1 states:
“When a borrower is rejected for unacceptable credit characteristics on the basis of information contained in his/her credit report, he/she must be notified and given the name, address, and where available, the telephone number of the credit reporting agency.
Note: This is a requirement of the Fair Credit Reporting Act (FCRA).”
In the same way that borrowers approved for an FHA loan must be notified, rejected borrowers also must be informed as to the hows and whys of the decision on their application. From Chapter One:
“When a loan is rejected, the lender must immediately complete
• a rejection notice consistent with the requirements of Regulation B and,
• when required, an Equal Credit Opportunity Act (ECOA) notice, forwarded to the borrower.”
Furthermore, HUD 4155.1 tells the lender, “At least one credit aspect must be rejected before the lender can issue an overall rejection. The rejection notice must provide specific reasons for the rejection. Delinquent credit accounts need not be listed.” Borrowers can’t be left in the dark about the reasons for the loan decision.
Chapter One states clearly, “The rejection notice must contain all the reasons for denial/ineligibility and any counter proposals to effectuate loan approval, such as reduced mortgage amount.”
Do you have questions about FHA loans? Ask us in the comments section.
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.
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