FHA Makes “Economic Event” an “Extenuating Circumstance” and It’s About Time!

FHA Makes “Economic Event” an “Extenuating Circumstance”

 

By: Tracey Rumsey, Staff Underwriter & Karen Deis, Publisher, www.MortgageCurrentcy.com

Well, it took 6 years – but FHA has decided that a job loss or decrease in income can now be considered an “extenuating circumstance,” which means additional business for you.

It’s great news for borrowers – but don’t jump the gun – at least not just yet!
This new FHA Mortgagee Letter (13-26)  released on August 15, 2013 and effective immediately now makes “Economic Event” (i.e., job loss, reduction in income, etc.) an acceptable extenuating circumstance.

And no, it was not previously allowed.
The good news:  This new guidance allows for a borrower to obtain a new FHA mortgage 12 months after a foreclosure, short sale or other derogatory event with re-established credit and housing counseling.
But, here are some of the issues you may run into: 
1. You don’t know if investors will accept this new guidance.

2. The borrower must document the decrease in income.

a. Decrease in income is defined as at least 20% loss of income that lasted for a period of 6 months or more.

b. Loss of job is defined as the “month” the borrower lost their job.

c. Recovery is defined as re-establishing credit for at least a 12-month time period.

d. Decrease in “household” income means “all individuals” residing in the primary residence at the time of the job loss.  (So, even if a spouse is not on the loan but lost their job, they still qualify for an extenuating  circumstances waiver.)

e. If job loss, written VOE showing date of termination.

1. If company is no longer in business, will need a written termination notice or public document showing the business was closed or start date of unemployment income.

2. If loss of income, VOE showing decrease from year to year, or signed tax returns or W-2 forms showing prior income, and compare to decrease in income of at least 20%.

3. If “seasonal income,” must have had a two-year history of receiving seasonal income and verification of loss of income (20%) or loss of job.

3. The borrowers must have satisfactory credit.

a. No late payments over the last 12 months, including housing, revolving, installment debts.

b. If they still have an existing mortgage, it’s okay if the mortgage was brought current with a loan modification, but still must have been paid on time for 12 months.

c. Non-traditional credit is okay, as long as the borrower has an on-time pay history over the last 12 months.

d. No collection accounts other than medical or identity theft issue.

e. Borrowers must have had satisfactory credit PRIOR to job loss or income decrease.

d. If judgments appear on credit report (and have been paid), they must also be a direct result of the job loss or income decrease.

f. If foreclosure, short sale or deed-in-lieu, must show proof that it was a direct result of income decrease or job loss.

g. If bankruptcy, must be at least 12 months from the date of discharge. Must be related to the economic event.
3. The housing counseling MUST happen a minimum of 30 days PRIOR TO LOAN APPLICATION. Depending on your institution’s definition of ‘application’, this could be difficult.

  1. A list of non-profit housing counseling services can be found at www.hud.gov or call 800-569-4287.
  2. Can be conducted by telephone, internet or in person.
  3. Counseling service must provide “specific” documentation and completion certificate signed by both the counseling service and the borrower
  4. Housing counseling fees paid by borrower or other agency that subsidizes housing counseling fees
  5. 4. If the foreclosure or short sale was on an FHA loan and there is a CAIVRS claim, a “Back to Work” waiver is available, but can’t be requested until full underwriting is complete.  (Interpretation:  More delays.)
  6. . Reverse Mortgages are not covered by this rule.

INTERPRETIVE COMMENTS: 

  • Check      with your lenders and see how they are planning to handle this new      “extenuating circumstance” and what documents they may require. HUD is      very, very specific as to the documents that are required to meet the      economic event underwriting rules.
  • Get  the word out to clients who are in the “derogatory waiting period” zone.
  • Let   your real estate agents know about the new change.

By the way, there are two other new Mortgagee Letters released regarding final guidance on collections and judgments.   But complete details can be found in in the September 10th issue of www.MortgageCurrentcy.com

Fair Access to Credit Score Disclosures—Coming to a Loan File Near You!

Most mortgage companies don’t realize this yet, but the Fair Access to Credit Score Disclosures are coming to a loan file near you!
We know the Dodd-Frank Wall Street Reform Act is massive—and covers all types of financial entities.

Tucked away in the bill is a section called “Fair Access to Credit Scores” which contains new rules for Adverse Action and Risk Based Pricing notifications.

Be prepared to add another disclosure to your already huge stack of disclosures. The actual form has not yet been created, but stay tuned.

The Risk Based Pricing is took effect January 11, 2011. The new credit score disclosure rules are supposed to become effective July 21, 2011. Here’s how the credit score disclosure and risk based pricing come together to trigger the disclosure.

Under the risk based pricing rule lenders are required to send a notice to any client who is receiving a loan with less than the best rates possible. So, if the best rate out there is for 25% down and a 740 credit score and your clients have neither, you’ll have to send them a credit score disclosure.

When they receive the notice and you may (meaning will) be asked to explain to them why they are paying from .25 pt. to 3.25 pts. extra on their loan.

This time around, the credit reporting agencies must also add certain disclosures when a consumer requests their credit score. Get a copy from your credit supplies of their disclosure because you know your clients will be asking you—not the credit bureaus—what it really means.

Credit scores are going to become more and more available to consumers So my advice is to GET YOUR CLIENTS TO REVIEW THEIR CREDIT BEFORE APPLING FOR A LOAN and start working on your script on how you’re going to explain why they have gotten the disclosure and why have to pay extra fees.
Provided by www.MortgageCurrentcy.com where we interpret the mortgage rules and regulations in plain language.

Heads Up Licensed LO’s – You’ll Need NMLS Credit Authorization starting 11-1-10

NMLS Requiring Your Credit Report Authorization – November 1, 2010. 

 One of the provisions of the National Mortgage Licensing System is that loan officers must be “financially responsible”.  At the time, everyone wondered what the heck that meant?

 Well, you knew it was going to happen.   The NMLS has announced that beginning on November 1st, 2010, all licensed loan officers (not registered) must authorize them to pull a credit report on YOU—regardless of what your state’s requirements—and even if your credit was previously reviewed. 

 If you will be applying for a license in the future, you must authorize the credit report pull as the time you apply.

 Here’s how it will work:

 You’ll have to log in your NMLS account.

 You will be asked some questions to prove our identity. These are personal questions so your company will NOT be able to answer them for you.  Questions that might be asked would be previous addresses, balances on loans, current or previous phone numbers—things that only you would know.

The fee is $15.

 The report will be considered “soft pull”; it will be thru TransUnion, using Vantage Score® and will be a singe report.  (Hint, pull your own TransUnion report and see exactly what you will need to do to fix any errors.)

 The NMLS will NOT be pulling the credit report.  They are serving as your state’s clearinghouse and it will be your state who will access the NLMS database and randomly pull a credit report.

 There are a handful of states, whose rules state that they will be pulling a report by the end of 2010.  The rest of the states will be between January and March, 2011.

 And, you won’t know when your credit will be checked—it could be a year from now.

 It also means that you are giving them the authority to pull a credit report for years to come.

 More info will be posted in the November 10th issue of www.MortgageCurrentcy.com  At the NMLS website http://mortgage.nationwidelicensingsystem.org/profreq/credit/Pages/default.aspx

In addition, the “state agency checklist”  was updated on October 15, 2010.

 http://mortgage.nationwidelicensingsystem.org/profreq/Documents/SAFE%20Compliant%20Requirements.pdf

Your Credit Report vs. Your Mortgage License–Heads Up!

Beginning November 1,  NMLS says that all LO”s are supposed to log into NMLS and authorize TransUnion to send a credit report (electronically, within NMLS) to their regulator(s). “MLOs will have to answer 3-4 questions about themselves in order to verify their identity with TransUnion before the credit report is generated.

So,  what’s “wrong” about the way loan officers have to be licensed?  ..first you pay all that money, spend all that time getting your license and only AFTER you’ve done that…will they pull a credit report…too see if you can continue doing loans.   I’ve heard of loan officers who are “on probation” because they had a collection 3 years ago.  Another state has suspended a LO’s license because of back child support (yeah, the child support needs to be paid–but how can he if he’s not working?)

It’s the cart before the horse scenario.

While a company may pay for the credit report through NMLS, only the MLO will be able to complete the identity verification process.” http://mortgage.nationwidelicensingsystem.org/profreq/credit/Pages/default.aspx. for more info on what’s involved and the fees.  Be sure to click thru to the OTHER links  on the website page metioned above.

I recommend that you check out your state’s “financial responsibility” measuring stick.  Your report will be sent to your state and they will contact you if problems. 

Keep up to date on all the rules and regulations with www.MortgageCurrentcy.com.  Try for $1 (just one buck)…

Are FHA Loans Assumable? You Bet!

A great financing option that real estate agents need to know about ,if they are listing a home for sale, is if the home has an FHA mortgage that was originated after December 15, 1989.  Why?  Because the loan is assumable!  More Info and Mortgage Talking Points(tm) “FHA Assumptions=More Sales” can be found at www.MortgageCurrentcy.com 

Here are some of the rules:

Buyer must qualify based on credit–(Servicer may be more lenient about the score)

Loan Fees are lower–(Servicer will charge for processing–usually a flat fee)

Seller may pay buyer’s closing costs

Secondary financing and borrowed funds may be used by buyer (Must qualify for all payments)

Sellers will be released of liability

What’s prohibited:  If buyer purchasing to use as investment property or 2nd home (some exceptions heres), loan is NOT assumable

At the time the home is listed for sale, real estate agents should order an “FHA Assumption Package” from the company servicing the loan.  They will also be the ones processing the paperwork. Great info to share with real estate agents–especially on Face Book!

Fannie Updates Qualifying Rules -Pre-Foreclosure

“Put your money where you mouth is”–is basically the new rule for people who have had a short sale or deed-in-lieu in their past.  In fact, this is the first time Fannie addressed “short sales” and how they will treat them.  So, here’s the skinny:

2 year waiting period and 20% down payments OR

4 year waiting period and 10% down payment OR

7 year waiting period and 5% down payment.

They also defined “extenuating circumstances” and said if people fall under this category,  it’s 2 years and 10% down payment.  more info www.MortgageCurrentcy.com

Credit scores still have to meet minumum.

Hook up with a credit repair company. Get the word out to real estate agents, past clients, friends & family.  Mortgage Talking Points flyer you can download for subscribers.

First-Time Home Buyer Credit Checklist

Getting a new mortgage for a First-Time Home Buyer can be a little overwhelming with all of the important details, guidelines and potential speed bumps.

Since there are so many rules and steps to follow, here is a simple list of Do’s and Don’ts to keep in mind throughout the mortgage approval process:

DO:

  • Continue working at your current job
  • Stay current on all your accounts
  • Keep making your house or rent payments
  • Keep your insurance payments current
  • Continue to maintain your credit as usual
  • Call us if you have any questions

DON’T

  • Make any major purchases (Car, Boat, Jet Ski, Home Theater…)
  • Apply for new credit
  • Open new credit cards
  • Transfer any balances from one credit or bank acct to another
  • Pay off any charge-off accts or collections
  • Take out furniture loans
  • Close any credit cards
  • Max out your credit cards
  • Consolidate credit debt

Basically, while you are in the process of getting a new mortgage, keep your financial status as stable as possible until the loan is funded and recorded.

Any number of minor changes could easily raise a red flag or cause a negative impact on a credit score that may result in a denied loan.

Most importantly, check with your loan officer on even the simplest questions to make sure your loan approval is successful.

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Related Articles – Home Buying Process:

Ten Things You Can Do To Protect Your Identity

Facts About Identity Theft:

It’s estimated that there were 10 million victims of identity theft in 2008, and 1 in every 10 U.S. consumers have reported having their identity stolen.

The U.S. Department of Justice reported in 2005 that 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised).

And, the U.S. DOJ also reported that those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000.

What Is Identity Theft?

According to the United States Department of Justice, identity theft and identity fraud “are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.”

Such personal information may include your name, address, driver’s license number, Social Security number, date of birth, credit card number or banking information.

Victims of identity theft can spend months trying to restore their good name. And most victims do not realize it has happened until they get denied for a mortgage or a credit card.

Ten Ways to Protect Your Identity:

1.  Dumpster Diving –

Avoid “dumpster diving” by shredding all papers that contain any personal information.

Criminals sift through trash looking for the following:

-Bank Statements
-ATM Receipts
-Canceled Checks
-Credit Card Statements
-Credit Card Purchase Receipts
-Credit Card Solicitations (unopened “pre-approval” solicitations)
-Pay Stubs
-Tax Documents
-Utility Bills
-Expired Identification Cards (Drivers License, Passports…)
-Expired Credit Cards
-Medical Statements
-Insurance Documents

2. Personal Info / Phone Calls -

Never provide personal information, including your Social Security number, passwords or account numbers over the phone or internet if you did not initiate the call.

If you are asked for any type of personal information, before giving any information, ask the caller for their name, telephone number and the organization that they are representing.

You should then call the company using the customer service number the company provides with your account statement. Do NOT call the number you were given by the caller.

To reduce the number of solicitations you receive, you can sign up at the do not call registry:

web: http://www.donotcall.gov
call: (888) 382-1222

3. Look Over Your Shoulder –

Avoid “Skimming and shoulder surfing” (Never let your credit card out of your sight).

Pay with cash. Try never to let your credit card out of your sight to avoid a fraud scheme known as “skimming”.

According to Wikipedia:

“Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an “inside job” by a dishonest employee of a legitimate merchant. The thief can procure a victim’s credit card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ credit card numbers.”

Be aware of people “shoulder surfing”. This is when they are looking over your shoulder or standing too close trying to obtain your PIN number when making purchases with your debit card. They may also be listening for your credit card number.

4. Secure Your Mail –

Always mail your outgoing bill payments and checks from the post office or a neighborhood blue postal box and never from home.

Pick up your incoming mail as soon as it is delivered. The longer it sits the better chance a criminal has of stealing it.

-Get a P.O. Box.
-Lock Your Mail Box

Contact your creditors if a bill doesn’t arrive when expected or includes charges you don’t recognize. It may indicate that it was stolen.

5. Read Credit Card Statements -

Review account statements to make sure you recognize the purchases listed before paying the bill.

If your credit card holder offers electronic account access, take advantage and periodically review the activity that is posted to your account.

The quicker you spot any unauthorized activity, the sooner you can notify the creditor.

6. Monitor Credit Report -

Review your credit report at least once a year to look for suspicious activity. If you do spot something, alert your card company or the creditor immediately.

7. Email Links –

Never click on a link provided in an email if you believe it to be fraudulent.

Keep in mind, no financial institution will ask you to verify your information via email.

Criminals may link you to phony “official-looking” web site to confirm your personal information. This is known as “phishing”.

According to Wikipedia:

“Phishing” is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication.

8. Opt Out –

Opt out of credit card solicitations. (Take your name off marketers’ hit lists)

You can opt out of credit card solicitations by calling 1-888-567-8688 to have your name removed from direct marketing lists.

You can do this online at OptOutPrescreen.com, which is the official consumer credit reporting industry opt-out website for the three credit companies:

Experian
Equifax
Trans Union

9. Safeguard Your Social Security Number -

Protect your Social Security number.

Never carry your Social Security card or anything else with your social security number on it in your wallet or purse, along with your driver’s license.

Do not put your Social Security number or driver’s license number on any checks you may write.

Only give out your Social Security number when absolutely necessary.

10. Read Privacy Policies –

Find out what company privacy policies are (know who you are dealing with).

When being asked for your Social Security number or driver’s license number, find out what the company’s privacy policy is.

Inquire as to why it is being asked for.

Ask who has access to your number.

Ask if you can arrange for them not to share your information with anyone else.

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Related Credit / Identity Articles: