FHA Mortgage Letter 12-03
FHA has delayed the portion of these underwriting changes regarding collection accounts ONLY pending additional input and clarification. Case numbers assigned between 4/1-4/8 will not be deemed in violation of HUD requirements if not processed per these guidelines. The change in requirements for self- employed borrowers is effective for case numbers issued on or after 4/1/12
For FHA case numbers issued on or after 7/1/12
Income documentation for self-employed borrowers:
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: NO EXCEPTIONS. If income used to qualify exceeds the 2 year average of tax returns, an audited P & L or signed quarterly tax returns obtained from the IRS are required. Annual earnings that are stable or increasing are acceptable, while businesses that show a significant decline over the analysis period are not acceptable, even if the current income and ratio’s meet FHA guidelines.
Collection accounts: if the total outstanding balance of all collection accounts is equal to or greater than $1000, the borrower must resolve the account (pay in full or enter into payment arrangements with minimum of 3 months verified payments as agreed)
Disputed accounts: disputed accounts will no longer be referred to a DE underwriter for review as long as the accounts meet both of the following:
- The total outstanding balance of all disputed accounts and collections are less than $1000 and
- Disputed account or collections are aged 2 years for the date of last activity as indicated on the credit report.
If the borrower has disputed accounts with cumulative balances equal to or greater than $1000, the accounts must be resolved (paid in full or payment arrangements with a minimum of 3 months of verified payments as agreed). Disputed accounts directly resulting from identity theft, credit card theft, etc. will be excluded if documentation to support can be provided (police report, letter from creditor, etc.) Paying down disputed or collection account below $1000 if NOT allowed.
- Identity of interest defined: For the purpose of Identity of Interest transactions, the definition of family members includes:
- Child, parent or grandparent (includes all step or foster relationships)
- Legally adopted son or daughter, including a child who is placed with borrower by authorized agency
- Foster child
- Brother, stepbrother
- Sister, stepsister
- Uncle, aunt