FHA just released a new mortgagee letter 12-03 which has 3 important changes:

  • Self Employed:  Highlight:  P&L and balance sheet required if it has been more than 3 months since the end of the last tax year that we have returns for.  Translated:  nearly 100% of the time the P&L and balance sheet will be required.
    • DETAILS: P&L and Balance Sheet required if more than a calendar quarter has elapsed since date of most recent calendar or fiscal-year end tax return was filed by the borrower – with no exceptions. Additionally, if income used to qualify the borrower exceeds the two year average of tax returns, an audited P&L or signed quarterly tax returns obtained from IRS are required.
  • Collections – previously did not have to be paid.  Now, if they exceed $1000, generally speaking, they must be paid.
    • DETAILS: If the total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts (e.g. entered into payment arrangements with minimum three months verified payments- paid as agreed) or paid in full at the time of, or prior to closing. Mortgagees must document the case binder showing each account was resolved or paid in full. If the total outstanding balance of all collection accounts is less than $1,000, the borrower is not required to pay off the collection accounts as a condition of mortgage approval. FHA continues to require judgments to be paid off before the mortgage loan is eligible for FHA insurance.*
  • Disputed Accounts – If the disputed account is less than $1000, then we can generally ignore it now.
    • DETAILS: If the Automated Underwriting System using the TOTAL Mortgage Scorecard rates the mortgage loan application as an Accept, the mortgage application will no longer be referred to a DE underwriter for review due to disputed accounts, as long as these accounts meet both of the following conditions: The total outstanding balance of all disputed credit accounts or collections are less than $1,000,and Disputed credit accounts or collections are aged two years from date of last activity as indicated on the most recent credit report. If the borrower has individual or multiple disputed credit accounts or collections with singular or cumulative balances equal to or greater than $1,000, the accounts must be resolved (e.g. payment arrangements with a minimum three months of verified payments made as agreed) or paid in full, prior to, or at the time of closing. The lender must obtain documentation supporting the payment arrangements or that the debt has been paid off. The payments arranged for the accounts must be included in the calculation of the borrower’s debt-to-income ratios. Disputed credit accounts or collections resulting from identity theft, credit card theft, or unauthorized use, etc., will be excluded from the $1,000 limit under the terms shown below. The mortgagee must provide in the case binder, a credit report or letter from the creditor, or other appropriate documentation, to support that the borrower filed an identity theft or police report to dispute the fraudulent charges. Mortgagees must provide documentation in the case binder to show all disputed or collection accounts are resolved, verified as not a debt to the borrower, arrangements made for payment, or paid in full.