The FHA’s latest Mortgagee Letter 13-26 "Back to Work - Extenuating Circumstances," begins with the following: “As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected.”
Using the term “economic event” to describe the kinds of issue faced by those affected negatively by the economic downturn is a little confusing, however; it outlines as such: “any occurrence beyond the borrower’s control that results in loss of employment, loss of income or both” that caused a 20 percent decline in household income for around six months. Essentially, this is the equivalent of the FHA saying: “Hey, we know things are bad, but we have an idea.” That idea is to allow those who have had their homes foreclosed on might be eligible for an FHA loan as soon as one to three years after receiving a foreclosure. Borrowers who lost their homes as a result of a direct hardship might even be able to receive an FHA loan in as soon as one year. To know whether or not one can qualify under the new provisions outlined by the FHA are as follows:
►Certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
►The borrower has demonstrated full recovery from the event; and,
►The borrower has completed housing counseling.
By providing adequate documentation and meeting the standards outlined by the FHA, an individual can then qualify for the new program. While this criteria may have changed, there are other aspects of FHA and HUD principles that haven’t.
“In addition to meeting the guidelines set forth in this ML, loans originated using these criteria must meet all other applicable FHA eligibility and policy criteria,” reads the FHA documentation. “Lenders remain responsible for determining whether the borrower meets all other HUD requirements before approving the loan.”