HUD has issued a new FHA mortgagee letter 2013-26 about those with foreclosures due to extenuating circumstances, it's also referred to as guidance for "Back to Work". This provides underwriting guidelines for evaluating borrowers that have experienced an Economic Event, as defined in the mortgagee letter.
What all this means is FHA will allow those borrowers that meet the criteria will be able to purchase a new home using FHA financing after one year. The borrower will have to document the following:
- credit issues were the result of a loss of employment or significant loss of household income beyond the borrower's control
- the derogatory credit must have been after the loss of income, not before
- the borrower has demonstrated full recovery from the event
- the borrower has completed housing counseling
This will allow buyers to get a new home after a short sale, foreclosure or a deed in lieu of foreclosure. They will have to document that their income was reduced by a minimum of 20% or more for a period of at least six months. They also have to document re-establishment of credit for a minimum of 12 months.
These are FHA guidelines, what we don't know is what the banks will require. Currently there are some lenders that have "overlays" on top of FHA guidelines. For example, one bank requires 7 years after foreclosures even though FHA only requires 3 years. So we will need to see what the banks are willing to take before we get too excited!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants – Email – Website
