FHA BK Guides

FHA

4155.1 4.C.2.f Previous Mortgage Foreclosure

A borrower is generally not eligible for a new FHA-insured mortgage when, during the previous three years

his/her previous principal residence or other real property was foreclosed, or

 

he/she has given a deed-in-lieu of foreclosure.

Exception: The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure. Divorce is not considered an extenuating circumstance. However, the situation in which a borrower whose loan was current at the time of a divorce in which the ex-spouse received the property and the loan was later foreclosed qualifies as an exception.

Note: The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.

4155.1 4.C.2.g Chapter 7 Bankruptcy

A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage, if at least two years have elapsed since the date of the discharge of the bankruptcy. During this time, the borrower must

have reestablished good credit, or

 

chosen not to incur new credit obligations.

An elapsed period of less than two years, but not less than 12 months may be acceptable for an FHA-insured mortgage, if the borrower

can show that the bankruptcy was caused by extenuating circumstances beyond his/her control, and

 

has since exhibited a documented ability to manage his/her financial affairs in a responsible manner.

Note: The lender must document that the borrower’s current situation indicates that the events that led to the bankruptcy are not likely to recur.

4155.1 4.C.2.h Chapter 13 Bankruptcy

A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that

one year of the payout period under the bankruptcy has elapsed, and

 

the borrower’s payment performance has been satisfactory and all required payments have been made on time.

The borrower must receive written permission from the court to enter into the mortgage transaction.

Total Scorecard Accept Recommendation

Lender documentation must show two years from the discharge date of a Chapter 13 bankruptcy or the loan must be referred to an underwriter.

Reference: For more information on the TOTAL Scorecard recommendation, see the TOTAL Mortgage Scorecard User’s Guide.

4155.1 4.C.2.i Consumer Credit Counseling Payment Plans

Participating in a consumer credit counseling program does not disqualify a borrower from obtaining an FHA mortgage, provided the lender documents that

one year of the pay-out period has elapsed under the plan, and

 

the borrower’s payment performance has been satisfactory and all required payments have been made on time.

The borrower must receive written permission from the counseling agency to enter into the mortgage transaction.

Total Scorecard Accept Recommendation

The borrower’s decision to participate in consumer credit counseling does not trigger a requirement for additional documentation since the credit scores already reflect the degradation in credit history. The borrower’s credit history, not voluntary participation in consumer credit counseling, is the important variable in scoring the mortgage and, thus, no explanation or other documentation is needed.

 

4155.1 4.C.2.l Short Sales

A borrower is not eligible for a new FHA-insured mortgage if s/he pursued a short sale agreement on his or her principal residence simply to

take advantage of declining market conditions, and

purchase at a reduced price a similar or superior property within a reasonable commuting distance.

Borrowers Current at the time of Short Sale

A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage

all mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and

all installment debt payments for the same time period were also made within the month due.

Borrowers in Default at the time of Short Sale

A borrower in default on his or her mortgage at the time of the short sale (or pre-foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.

4155.1 4.C.2.f Previous Mortgage Foreclosure

A borrower is generally not eligible for a new FHA-insured mortgage when, during the previous three years

his/her previous principal residence or other real property was foreclosed, or

he/she has given a deed-in-lieu of foreclosure.

Exception: The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure. Divorce is not considered an extenuating circumstance. However, the situation in which a borrower whose loan was current at the time of a divorce in which the ex-spouse received the property and the loan was later foreclosed qualifies as an exception.

Note: A borrower who sold his or her property under FHA’s pre-foreclosure sale program is not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.

Ran on Allregs 03/08/10