FHA Loan Updates... Again.

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Jeremy Lovett

480-744-6040

Jeremy@JJLovett.com

http://www.JJLovett.com

This week I wanted to cover the updated FHA guidance that just went into affect regarding borrowers with collection accounts. FHA is a smaller portion of our business now than it has been over the last few years because they have become more restrictive and more expensive. Conventional financing on the other hand has become easier to acquire and less expensive with the lower down payment figures and therefore has regained the lion’s share of the financed transaction business. Even with FHA shrinking it makes up just shy of 20% of all purchase transactions in Arizona so it is important to keep up with their changes.

This week they adjusted how we view collections on the lending side. The change broke collections down into two categories. The first is medical collections and charge offs as these types of collections are exempt from the updated guidance. Every other type of collection falls into the new category and is going to be subject to a bit more review. The intention here is to judge whether or not collections on a borrower’s credit are a sign of a borrower’s disregard for their creditors.

All non exempt collections moving forward are treated in one of two ways. If the borrower’s file gets and “Accept” from the FHA automated approval system then the borrower does not need to explain the collections. We will however have to count some sort of payment on the collection into the borrower’s qualification if they have in excess of $2000 in total collection debt. The other scenario is if the borrower’s file does not get and “Accept” from the approval system and is forced to be manually reviewed by an underwriter. In this scenario the borrower has to have some justification for why the collection exists as well as considering a payment on the collection in their qualification.

For more information about this or home financing give me a call at 480-744-6040 or email me at Jeremy@JJLovett.com

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FHA Loan Updates... Again.