Written By: Glenn Michaels, Op-Ed Writer
On August 15, 2013 HUD issued three new Mortgagee Letters numbered ML 2013 – 24, 2013 – 25, and 2013 – 26 which moved FHA underwriting back to manual underwriting under certain scenarios.
With all the recent changes over the last few months whereby the mortgage loan file must be downgraded to a “Refer” and manually underwritten or in cases where the file could not be underwritten at all using an Automated Underwriting System (AUS) together with the FHA TOTAL Score Card below is a brief summary of the loan scenarios that now must be manually underwritten.
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FHA Streamline Refinance transactions – All FHA cases that are being processed and underwritten as a FHA Streamlined Refinance must be manually underwritten by the direct endorsed underwriter. These files are not to be inputted into an Automated Underwriting System with the TOTAL Scorecard.
Borrowers with non – traditional credit only – borrowers that have no traditional credit at all, whereby we are able to develop three to five non – traditional credit items. Exhibit no lateness on the non – traditional credit and show that they have at least two months PITI cash reserves and qualify with ratios of 31% and 43% the loan must also be manually underwritten by the direct endorsed underwriter. These loans are not to be inputted into an Automated Underwriting System with TOTAL Scorecard.
Loan files whereby the Automated Underwriting System and TOTAL Scorecard was with a finding of “Refer”. Any loan file regardless of the transaction type, loan amount that receives “Refer” or a “Caution” must be manually underwritten by the direct endorsed underwriter.
Credit Analysis of Collections and Judgments (Mortgagee Letter 2013 – 24) beginning with case numbers assigned on or after October 15, 2013. If a loan file has collection accounts and judgments other than medical and charge offs and the Automated Underwriting System with TOTAL Scorecard generates a “Refer” the file must be manually underwritten by the direct endorsed underwriter. If the borrower has $2,00.00 or more of collection items other than medical or charge offs the direct endorsed underwriter must perform a “capacity analysis” by using 5% of unpaid balance in the debt to income calculation. Court ordered judgments no longer must be paid off at or before the closing providing the judgment has been in a payment plan for at least three months and include the payment in the debt to income ratio. Borrowers with disputed accounts must analyze to reflect the risk associated with the disputed account.
Disputed items for $1,000.00 or more must be manually underwritten by the direct endorsed underwriter.
Collections and Disputed Accounts with balances of $2,000.00 or more must be manually underwritten by the endorsed underwriter and include the monthly payments in the debt to income calculation. Medical and charge offs are not to be considered for cases assigned October 15, 2013 or after. All disputed accounts totaling $1,000.00 or more must be manually underwritten by the direct endorsed underwriter. See Mortgagee Letter 2013 – 25.
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Back to work – extenuating circumstances as contained in Mortgagee Letter 2013 – 2013 – 26 effective immediately. If a borrower had an Economic Event with proper documentation and explanation and evidence of the recovery of the economic event the direct endorsed underwriter must manually underwrite the loan file and only wait one year instead of the current established waiting periods for individuals that were in bankruptcy, foreclosure, deed in lieu, short sale along with HUD Approved Housing Counseling Certificate.
It also appears that HUD/FHA has recognized that the United States has had or is still in an economic recession and is willing to work with borrowers impacted by the economic recession as long as the borrower can furnish the required documentation as required they might be able to obtain FHA insured financing.
About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
