“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 a FHA-insured mortgage,” according to Mortgagee Letter 2013-26.
Lenders must document that the borrower lost their job or suffered a significant reduction in income due to circumstances “beyond their control” and the borrower has demonstrated a full recovery from the event,” the Aug. 15 Mortgagee Letter says.
President Obama unveiled the new FHA program during a housing policy speech in Phoenix recently.
The Back to Work initiative will provide “creditworthy re-employed borrowers with strong recent pay histories” access to FHA financing. “We should give well-qualified Americans who lost their jobs during the crisis a fair chance to get a loan if they’ve worked hard to repair their credit,” the president said.
But lenders may find the documentation and other requirements will take a lot of work and leave them open to second guessing by auditors.
The mortgagee letter makes clear that lenders are responsible for meeting the guidelines and all other HUD requirements before making the loan.
Mortgage consultant Brian Chappelle noted that the new program could help some borrowers but it requires lenders to make a lot of judgment calls.
“Every little bit helps,” he said, “But lenders are going to be skittish about making judgment calls that could come back and bite them.” Chappelle is a founder of Potomac Partners in Washington.