Conventional, FHA and VA mortgage loans in Phoenix may soon become harder to obtain for those with a troubled credit history. Currently, a borrower with up to $5,000 in collections may still eligible to purchase a home in Phoenix, in many cases. The new guideline change could also affect current Phoenix home purchase transactions you may have in process.
The following policy change was announced from U.S. Bank Home Mortgage, specifically relating to the Correspondent Lending Division's Underwriting policy for all loan products including FHA, VA and Conventional loans.
Collections, Charge-Offs, Judgments, Garnishments and Liens:
Delinquent credit must be paid off at or prior to closing. This includes taxes, judgments, collections, charged-off accounts, tax liens, mechanics' liens, and liens that have the potential to affect US Bank's lien position or diminish the borrower's equity.
Documentation of the satisfaction of these liabilities, along with verification that there were funds sufficient to satisfy these obligations, must be included in the underwriting file.
Per the US Bank memo, this policy will be effective Monday, October 4, 2010, for all loans submitted for underwriting to a USBHM Underwriting Center, for MI Contact Underwriting and loans submitted for purchase by their Delegated Correspondents.
All collection accounts (including medical collections) and charged-off accounts do not have to be paid off at or prior to closing if the total balance of all accounts combined is $1,000 or less. No minimum monthly payment has to be included in monthly debt unless one has been set up and the borrower has been paying a set amount.
Collection accounts or charged-off accounts that exceed the above $1,000 limit in combined balances do not have to be paid off at or prior to closing, provided all of the following are documented:
- A strong credit profile
- Meaningful financial reserves
- Evidence that the accounts pose no threat to our first mortgage lien
This announcement is not industry wide, but specifically relates to loans delivered to US Bank Home Mortgage through Correspondent Lending. US Bank Home Mortgage is known as one of the more conservative residential lenders, sometimes coming out with guideline changes up to 6 months before other lenders. This memo also doesn't insinuate that all lenders will change the guidelines they use to underwrite, rather with the tightening of the market, there is possiblility. However, if this does become more prevalent your clients will become frustrated that they didn't have adequate time to prepare additional cash reserves, you will have to cancel your Phoenix home purchase contracts and your real estate career will suck.
About the Author
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