A. Acceptable Credit Scores for Manually Underwritten Loans
Underwriting manually with validated credit scores. The lender must perform a detailed review of all aspects of the applicant’s credit history. Credit scores will be utilized to underwrite manually underwritten loans. Applicants with validated credit scores (See Section 10.5 of this Chapter) of 640 or greater meet the minimum credit reputation provided indicators of unacceptable credit, as addressed below, are not present in the applicant’s credit file. The presence of collections, charge-offs, judgments, disputed accounts, authorized user tradelines and payment shock in the credit analysis, as described in this Chapter, may require further evaluation and documentation by the lender.
Refer to Attachment 10-B and Section 10.8 for guidance when considering granting an exception for extenuating circumstances to the credit standards set forth in this Chapter.
Determining the credit score for manual underwriting.
If the applicant’s credit report has three scores, the middle score should be used as the representative score.
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If the applicant has two scores, the lower of the two should be used as the representative score.
If the applicant has a repeating score, that score will be utilized.
If the applicant has one score, a NTMCR must be developed for manually
underwritten loans. Each applicant must be evaluated separately.
Indicators of unacceptable credit. The following indicators require documentation meeting the criteria of Section 10.8 to approve an applicant’s loan request for manually underwritten loans:
Foreclosure within 3 years:
Including pre-foreclosure activity, such as a pre-foreclosure sale or short sale
in the previous 3 years (refer to Attachment 10-B for additional guidance);
Bankruptcy within 3 years:
Chapter 7 bankruptcy discharged in the previous 3 years;
An elapsed period of less than 3 years, but not less than 12 months, may be acceptable if the applicant meets the criteria of Section 10.8 of this Chapter.
Chapter 13 bankruptcy that has yet to complete repayment (repayment plan in progress) or has completed payment in the most recent 12 months.
Plans that are completed for 12 months or greater do not require a credit exception in accordance with Section 10.8;
Late mortgage payments if any mortgage trade line during the most recent 12 months shows 1 or more late payments of greater than 30 days.
Late rent payments paid 30 or more days late within the last 12 months.
Lender actions when indicators of unacceptable credit are present on manually underwritten loans. When indicators of unacceptable credit are present and the lender proposes to approve a credit exception, the lender will refer to Section 10.8 of this Chapter to determine if an exception to credit can be granted. A lender is required to obtain documentation to support an approval of the loan request, based upon the criteria of Section 10.8. Documentation will be retained in a lenders permanent loan file.
Low credit score loan requests. A credit exception with supportive documentation confirming the circumstances leading to derogatory credit that attributed to the low credit
10-12 If the applicant has two scores, the lower of the two should be used as the representative score.
If the applicant has a repeating score, that score will be utilized.
If the applicant has one score, a NTMCR must be developed for manually
underwritten loans. Each applicant must be evaluated separately.
Indicators of unacceptable credit. The following indicators require documentation meeting the criteria of Section 10.8 to approve an applicant’s loan request for manually underwritten loans:
Foreclosure within 3 years:
Including pre-foreclosure activity, such as a pre-foreclosure sale or short sale
in the previous 3 years (refer to Attachment 10-B for additional guidance);
Bankruptcy within 3 years:
Chapter 7 bankruptcy discharged in the previous 3 years;
An elapsed period of less than 3 years, but not less than 12 months, may be acceptable if the applicant meets the criteria of Section 10.8 of this Chapter.
Chapter 13 bankruptcy that has yet to complete repayment (repayment plan in progress) or has completed payment in the most recent 12 months.
Plans that are completed for 12 months or greater do not require a credit exception in accordance with Section 10.8;
Late mortgage payments if any mortgage trade line during the most recent 12 months shows 1 or more late payments of greater than 30 days.
Late rent payments paid 30 or more days late within the last 12 months.
Lender actions when indicators of unacceptable credit are present on manually underwritten loans. When indicators of unacceptable credit are present and the lender proposes to approve a credit exception, the lender will refer to Section 10.8 of this Chapter to determine if an exception to credit can be granted. A lender is required to obtain documentation to support an approval of the loan request, based upon the criteria of Section 10.8. Documentation will be retained in a lenders permanent loan file.
Low credit score loan requests. A credit exception with supportive documentation confirming the circumstances leading to derogatory credit that attributed to the low credit
10-12
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score is required for all loans receiving a credit score of 639 or below. Circumstances must meet criteria, as outlined in Section 10.8 of this Chapter to be eligible for a credit exception. Loans with credit scores of 580 or below should not be approved.
Lender actions when inaccurate information is reported. Credit trade-lines that list the applicant as an “authorized user” cannot be considered in the underwriting decision unless another applicant in the mortgage transaction is the owner of the trade-line, or the owners of the trade-line is the spouse of an applicant, or the applicant can provide documented evidence that they have made the payments on the authorized user account for 12 months preceding application. Refer to Section 10.12 of this Chapter for further guidance.
Lender actions when collections are reported. Lenders will follow guidance in Section 10.9 when collections are reported on the credit report.
Lender actions when judgments are reported. Lenders will follow guidance in Section 10.10 when judgments are reported on the credit report. Applicants who have outstanding Federal judgments (other than IRS) that are open and unsatisfied are ineligible for the SFHGLP. Applicants who have an IRS tax debt are ineligible if a repayment plan is not underway. If a repayment plan is underway, the lender will determine if the repayment plan meets the criteria of a credit exception in accordance with Section 10.8 of this Chapter.
Lender actions when disputed accounts are reported. Lenders will follow guidance in Section 10.11 when an applicant has disputed tradeline references.
Obtaining rental history for manually underwritten loans. Lenders will follow Section 10.13 for guidance in obtaining rental history for manually underwritten loans. Loan requests with validated credit scores of 680 or greater are not subject to rental verification for manually underwritten loans.
Underwriting with no credit score. The use of non-traditional credit references as described in Section 10.6 of this handbook is acceptable if the applicant does not have a credit score, OR the credit score cannot be validated in accordance with Section 10.5 of this Chapter. If the required number of traditional or nontraditional tradelines cannot be documented, the loan is ineligible.
The lenders evaluation and conclusion that the credit reputation is acceptable. The lender’s underwriting decision to approve a mortgage must be based on an overall evaluation of the risks documented in the mortgage file. Underwriters must consider the entire credit profile of each applicant and not approve a loan based upon a single component. The lender may consider the strength of some components against the weakness of one component to arrive at a conclusion. The lender must document the evaluation in the lender’s permanent mortgage file. Whenever there is evidence of layered risk, more conservative underwriting standards must be utilized.
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