Mortgagee Letter 2012-3 make changes to how FHA handles
collection accounts, judgments, and disputed accounts on a borrower’s credit
report.
Collections:
As a condition of mortgage approval, a borrower must pay off
all collections that are less than 2 years old.
Also, if the outstanding balance of all collections that are over
$1,000, the borrower must pay off all collections in excess of $1,000 at or
prior to closing. Charge-offs are not
included in the $1,000 limit.
An acceptable alternative to paying off the collections is
to enter into a payment agreement with the creditor and show a minimum 3-month
payment history. These monthly payments
must be added to the borrower’s liabilities and included in their debt to
income ratios.
Judgments:
All court-ordered judgments must be paid off at or prior to
closing. An acceptable alternative to
paying off the judgments is to enter into a payment agreement with the creditor
and show a minimum 3-month payment history.
These monthly payments must be added to the borrower’s liabilities and
included in their debt to income ratios.
Disputed Accounts
on Credit Report:
Provided the mortgage application is approved by the automated
underwriting system, the borrower’s application is no longer required to be
referred to a DE underwriter for manual underwriting provided these accounts
meet the following conditions:
·
The total outstanding balance of all disputed
accounts are less than $1,000 and
·
Disputed accounts/collections are aged two years
from last activity.
If the disputed accounts are greater than $1,000 or less
than two years old they must be paid at or prior to closing.
Disputed accounts due to identity theft, credit card theft,
or unauthorized use will be excluded from the $1,000 limit. Borrower must provide proof that they filed
and identity theft and/or police report to dispute the fraudulent charges
An acceptable alternative to paying off the disputed
accounts/collections is to enter into a payment agreement with the creditor and
show a minimum 3-month payment history.
These monthly payments must be added to the borrower’s liabilities and
included in their debt to income ratios.
Note: Paying “down”
of balances on collections and disputed accounts/collections to reduce the
balance to below $1,000 is NOT an acceptable resolution of accounts.
These changes take effect for all FHA case numbers assigned
on or after April 1, 2012.
It is always a good idea to contact me as soon as you decide
you are going to purchase a home. We can
check your credit report and see if there are any issues that can be taken care
of ahead of time. I can be contacted at
708-473-7688 or BarkerLoans@gmail.com.
