FHA & Collections

[swizzle1989]

Hello,

I was approved for a FHA Mortgage however the Loan Officer is saying under the condition that I satisfy 2 collections on my credit report. One of the reasons that I went with FHA is because of their view on collections in their public underwriting guidelines. Doing some research on my own, I read the collection Sections on HUD.gov's 4155.1 Guidebook on "Guidelines for Credit Report Review" and section 4155.1 3.C.2.e states "FHA does not require that collection accounts be paid off as a condition of mortgage approval. However, court-ordered judgments must be paid off before the mortgage loan is eligible for FHA insurance endorsement."

Has anyone else experienced this? I sent a copy of the Guidebook in PDF to the Loan Officer and he said he would review it with his Underwriters.

[tooleman694]

The bank follows their own guidelines. If they want it paid, you either find a new bank or pay it.

[swizzle1989]

I don't see how a bank could legally deny my loan if the base Guidelines for FHA state that I don't have to satisfy collections.

[StartingOver10]

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@swizzle1989 wrote:

I don't see how a bank could legally deny my loan if the base Guidelines for FHA state that I don't have to satisfy collections.

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Yes, the bank can deny your loan if you don't fit the banks guidelines.

FHA guidelines are minimum guidelines that permit the loan to be insured by FHA. The funds are actually loaned by the bank and if the bank's guidelines aren't met, they aren't going to loan you the money. The whole purpose of FHA is to induce the bank to make loans to those that are putting down smaller down payments and that are higher risk borrowers. By insuring the top 19% to 35% of the loan (depends upon the type of mortgage insurance) to the lender, the lender will make the loans to riskier consumers. However, the bank still sets their minimum guidelines (which are usually more restrictive than pure FHA guidelines). Different banks have different overlays but if they are issuing FHA loans, they all have to at least meet the minimum FHA requirement.

How old is your collection? How large is your collection? Is it from something that is likely to turn into a judgment (like a repo)? Or is it a judgment already?

[swizzle1989]

The 2 collections total around $19,000. Both are 5 years old and out of the FL SOL.

[StartingOver10]

You checked to make sure that this isn't a CA that was sent to collect on an existing judgment?

Your judgment may not even be on the CR, but it would be in the public records for the county in which you reside. It is not unusual for a judgment to be issued without your knowledge. Check the public records. The collecitons that large, the likelyhood of it being a judgment is pretty high.

[swizzle1989]

How would I look up judgments?

[swizzle1989]

I found it on the state website. No judgements listed under my name.

[StartingOver10]

look under the county. it will be under the clerk of courts under your name