Written By: Glenn Michaels, Op-Ed Writer
Recently HUD/FHA issued three new mortgagee letters that on the surface indicates a new way that HUD/FHA is going to treat borrowers with past credit problems. More specifically Mortgagee Letters numbered 2013 – 23, 2013 – 24, and 2013 – 25 that can be found in the FHA Connection or in www.fha.gov and then access mortgagee letters.
The reason for my skepticism is due to credit scoring. HUD/FHA allows a FHA borrower with 10% down with a credit score as low as 500. Borrowers with credit scores 580 and above can obtain maximum financing. The FHA allows credit scores as low as 500, however, most institutional investors have overlays that prevent FHA borrowers to obtain FHA financing with credit scores below 640 some not lower than 620.
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Generally borrowers with past credit problems will receive lower credit scores and may qualify for a FHA insured FHA mortgage, but will not qualify due to the FHA overlays imposed by our institutional investors.
When underwriting any FHA loan go right to the credit report and check out the credit scores to determine the decision score that will be used. If you do not have an institutional investor that will purchase a FHA loan with a credit score as low as your file indicates, then you do not have a FHA loan that you can sell in the Secondary Market.
All those recent changes mean nothing if the credit scores are too low and you have no institutional investor to purchase the loan file.
If HUD does not apply pressure to the large banks to go by their guidelines then these guideline changes mean nothing.
All credit bureaus upon receipt of a credit dispute from a debtor must investigate each and every dispute and if unable to resolve the issue in thirty days must remove the credit item from the debtor’s credit profile.
If a credit bureau acknowledges that a debtor has a valid dispute the debtor’s credit profile will be duly noted that the account or account(s) are in dispute.
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After reading the three recent mortgagee letters put forth by HUD, it was learned that credit items in dispute do not impact a person’s credit score but if the disputed items aggregate balances equal to or exceed $1,000.00 the loan file must be downgraded to “refer” and be manually underwritten as the disputed items do not impact the credit score.
Everyone knows many individuals during the latest economic recession were out of work. In some cases borrowers had no choice but to file bankruptcy, and/or lose their home through foreclosure. The new changes address the economy and hopefully the credit scores will also be acceptable or these changes will not work.
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.
