FHA Rules on Collections

[raisinitup]

So I've been preapproved for an FHA loan with a non purchasing spouse. The reason my spouse is not going on the loan is because he has some 5 and 6 year old collections that were sold to JDB's just this year. There are a total of 5 collections with 3 set to fall off in May. The last 2 total about $600 but were just reported in January. Everything we have in savings is for down payment and closng costs and we're very sure that one of these is not even his. What are the official rules on collections and FHA loans ? I've read a lot of threads on the board but some are contradictory. 

[MovingForward_2012]

Usually you have to have a least 12 months of no new collections or late payments to qualify for FHA. AFAIK there is a no firm requirement coming from the government regarding collections. All the requirements relating to collections, come from the lender. There are different overlay requirements for various lenders. And then there is unique underwriter discretion under that...in other words, how comfortable does the UW feel about a particular loan. Sometimes UWs will allow one late payment or unpaid collection slide if the borrower's score is not borderline.

[raisinitup]

I get it but the collections were reported this year by the new JDB but are actually 5+ years old. Does that mean anything ?  Even if we pay them off will we still not be able to get an approval for him ? 

[tooleman694]

Im doing the same kind of loan, my Wife will not be on the loan and she has some pretty crazy collections. They said nothing about them.

[MovingForward_2012]

No it doesn't. The lender goes by the date the collection was added to your credit report.

[JM-AM]

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@MovingForward_2012 wrote:
No it doesn't. The lender goes by the date the collection was added to your credit report.

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Let me clarify a little...

The collection is an older collection and even though a new collection company just starts to report it, it will have no impact on the SOL or the time period when it will fall off your reports. UW's know this and is taken into consideration. The date that counts is the original DOFD from the original creditor.

[MovingForward_2012]

My point was if the debt occurred 5 years ago and a collection just now posts to your credit report, the 5 years that collection activity has been in effect doesn't matter. Lenders go off the DOFD that was posted to your credit report. A collection that was transferred to another company and reported, is a different scenario and what JM-AM said, applies.

[raisinitup]

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@JM-AM wrote:

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@MovingForward_2012 wrote:
No it doesn't. The lender goes by the date the collection was added to your credit report.

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Let me clarify a little...

The collection is an older collection and even though a new collection company just starts to report it, it will have no impact on the SOL or the time period when it will fall off your reports. UW's know this and is taken into consideration. The date that counts is the original DOFD from the original creditor.

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OH ok, so if I understand you if the original debt occurred in 2006 and is transferred to a new JDB in January of this year, the UW should be able to  look at the DOFD, etc and determine the difference between something that just became delinquent and went into collections in the past 12 months and something that's 5 or 6 years old. Is it likely the UW would make us pay these prior to closing or even worse, deny us a home loan based on them being "reported" every month. BTW, his mid score is 660. 

[JM-AM]

Payment on collections seems more based on UW discretion when they are several years old. But I wouldnt pay them or even mess with them unless it comes back as a condition.

Even if you are required to pay the collection as a condition, you can still negotiate a settlement instead of paying in full.

If your collections are an issue for a quick denial you will know when goes thru automated, and your LO and or Broker will guide you from there. It may just need manual UW, but they should let you know.

[ShanetheMortgageMan]

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@JM-AM wrote:

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@MovingForward_2012 wrote:
No it doesn't. The lender goes by the date the collection was added to your credit report.

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Let me clarify a little...

The collection is an older collection and even though a new collection company just starts to report it, it will have no impact on the SOL or the time period when it will fall off your reports. UW's know this and is taken into consideration. The date that counts is the original DOFD from the original creditor.

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I respectfully disagree.  On the account that eventually went to collections, it has been my experience that it's the date when it was sent to collections that the underwriter goes by, rather than the DOFD from the original creditor.  For example if a credit card account had late payments, and eventually went to collections, the underwriter wouldn't use the first late payment date in the string of late payments before it went to collections... at best they'd use the most recent date of delinquency on the original creditor, but IMO would still go by the date it was originally sent to collections.  Perhaps I misunderstood what you meant.

I agree that on re-sold collections, the date it was sent to the original collection agency would be used.  Unless it specifies on the credit report, then in that situation documentation that the new collection agency is collecting on the account that the prior collection agency was trying to collect on should be provided.