Section Summary of Mortgagee Letter 2013-26 Dated: August 15, 2013
"Back to Work - Extenuating Circumstances"
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. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.
To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that:
• 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.
Borrowers that may be otherwise ineligible for an FHA-insured mortgage due to FHA’s waiting period for bankruptcies, foreclosures, deeds-in-lieu, and short sales, as well as delinquencies and/or indications of derogatory credit, including collections and judgments, may be eligible for an FHA-insured mortgage if the borrower:
• can document that the delinquencies and/or indications of derogatory credit are the result of an Economic Event as defined in this ML,
• has completed satisfactory Housing Counseling, as described in this ML, and
• meets all other HUD requirements.
An Economic Event is any occurrence beyond the borrower’s control that results in Loss of Employment, Loss of Income, or a combination of both, which causes a reduction in the borrower’s Household Income of twenty (20) percent or more for a period of at least six (6) months.
The Onset of an Economic Event is the month of Loss of Employment/Income.
Recovery from an Economic Event is the re-establishment of Satisfactory Credit for a minimum of twelve (12) months.
Borrower Household Income means the gross income of the borrower and all Household Members, as defined below, for purposes of assessing loss of income. The gross income of each Household Member must be computed in accordance with FHA income requirements.
Note: Household Member, for the purpose of this ML, means an individual residing at the borrower’s primary residence at the time of the Economic Event and who was a co-borrower on the borrower’s previous mortgage.
Note: Borrower Household Income is used for the purpose of defining an Economic Event. Only the income from the borrower, not Household Income, may be used as Effective Income for the purpose of qualifying for the new loan.
Housing Counseling, for purposes of this ML, means counseling from a HUD-approved housing counseling agency related to homeownership and residential mortgage loans that is provided in accordance with 24 C.F.R. part 214 “Housing Counseling Program” and satisfies the requirements identified in Satisfactory Housing Counseling.
Please contact our office today at 909-335-7100 to review your
individual circumstances and see if you qualify!