FHA changes are upon us, learn how they effect you!

Effective for FHA case numbers assigned on 10/15/2013 or later

Collection & Judgment Accounts
All borrowers and NPS are included when looking at judgment and the new collection balance.
     1.    Medical collections, profit and loss, and charge-off accounts are disregarded in calculating your total   
             aggregate balance.
     2.    Collections greater than or equal to $2,000 aggregate balance, including NPS in community property
             state:
               -       At the time of closing, payment in full of collection accounts (acceptable source of funds              
                       required).
               -       If payment arrangements are made with creditors, the credit report or letter from the creditor
                       verifying payment must be provided and included in the DTI.
               -       If payment is not provided, the lender must use a 5% monthly payment of outstanding balance in 
                       the DTI.
     3.    Judgments:
               -       All judgments for borrowers and NPS in community property state must be paid in full, or
               -       Payment arrangements may be made. You must have a copy of the payment arrangement and 
                       proof of payment for 3 months. You cannot prepay your 3 months. Along with all of the above
                       guidelines, if your loan receives a Refer or Subject to Manual Downgrade, the borrower must
                       provide a letter of explanation with supporting documentation for each outstanding collection
                       account and judgment. The documentation must be consistent with other credit information in the
                       file.

Disputes
Borrower only – you don’t have to use NPS
     1.    Derogatory Disputed Accounts, including
                -       Disputed Charge-off
                -       Disputed Collections
                -       Disputed Accounts with late pays in past 24 months
                            ● If cumulative outstanding balance of disputed derogatory accounts is greater than $1,000,
                                you must downgrade to manual underwrite
                            ● If cumulative outstanding balance of disputed derogatory accounts is less than or equal to
                                $1,000, you do not have to downgrade to manual underwrite
                            ● Medical collections are excluded
                            ● Identity theft is excluded, but must provide police report
                            ● All disputed accounts must have a letter of explanation by the borrower on the bases of the
                               dispute
                            ● NPS derogatory disputes are excluded
     2.    Non-Derogatory Disputed Accounts including
                 -       Disputed Accounts with zero balance
                 -       Disputed Accounts with late pays aged 24 months or later
                 -       Disputed Accounts that are paid as agreed
                            ● You do not have to downgrade to manual underwrite, but
                            ● Lender must analyze the effect of the disputed accounts in the borrower’s ability to repay the
                                loan.

                                                                                   (This information has been provided by www.pnlending.com)