FHA credit guidelines

[oldhack]

...So, I am clear now that even though the house was included in the BK and debt was discharged, that the 3 yr rule applies and that the clock starts from the date that the trustee put it up for auction.

Actually, I don't think it's the date it was put up for auction, but the date the deed actually was written to a new owner. In other words, when the sale was completed.

[zxrider]

Everything I have been told is the seasoning is 3 years from discharge date for a deed in lieu/foreclosure of a mortgage discharged in BK. This can be subject too especially if you have 2+ years after discharge. The 3 year requirement for foreclosure only (no BK involved) is subjective and can be shorter if extenuating circumstances exist. It would be naive to believe that the borrower is responsible for slow dragging a foreclosure proceeding long after it was discharged. Its the banks fault. There is really no rationale for 3 years from sale date particularly if you moved out shortly after discharge as I did. Yes, I am keeping my rental reciepts and lease agreement to substantiate it.

[Ugh07]

it may not seem rational but this is what Banks are requiring. 3 years from the date the deed changes hands. It doesnt matter if its been 5 years since discharge

[zxrider]

As you know the FHA guidelines there is no specific guideline (that I have been privy to) addressing the seasoning requirement of a discharged mortgage in BK whose property was subsequently foreclosed. (I even called the FHA help desk and they were stuck on stupid. Just kept telling me the 2 year/3 year guideline but couldn't get beyond that and address a bankruptcy scenario. I dare anyone to call them and give them the bankruptcy scenario and get a straight answer)
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Its funky really since its semantics technically. Was the house "foreclosed" or did the borrower receive a court ordered "discharge"? The deed of trust (mine at least) addresses a mortgage "discharged" in bankruptcy as an entirely different event than non-payment.
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My FHA source has told me that the timetable in these cases is 3 years from discharge for a deed in lieu/foreclosure.
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I would expect conventional guidelines like this since its apples/oranges to FHA guidelines. And if your comments refer to FHA I would be curious who your source is. (is there a written guidelines that FHA has? Since none is posted on their site and there own people can't answer this)
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Overall, since banks can layer guidelines over FHA guidelines its not out of the question what can be required. Is this an overlay requirement more than a FHA requirement.?
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Not that life is fair but on the face of it using sale date is stupid. How does using the sale date reduce a new loan risk over using the discharge date.
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How do those banks that go with this put this preponderance on the borrower when in most cases it is the banks themselves and/or laws that have grossly extended out the timetables to foreclose!! i.e. I'm sorry Mr. Borrower since your bank failed to foreclose on your house for the year after you discharge the debt and moved out and decided it wanted its shadow inventory to prevent flooding the market you will be a better borrower waiting another year to apply!!! WTF?
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I'd really like to know where is it this guideline exist in FHA requirements. What memo does is it sourced from.? What chapter in FHA guidelines is it recited. Seems like I have two different story's coming from FHA experienced people.
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Lastly, even if you don't have 3 years post sale date isn't that a requirement which is subjective and can be worked around given enough compensating factors?
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Overall, seems like banks are doing things differently. Some using from discharge date and some sale date. I think this is a bank layering issue and not a FHA guideline issue. Anyone know fer sure?

[zxrider]

Well for kicks I decided to call FHA customer service on this topic. After some vague explanations I spoke to a supervisor who seemed to know her sheeet. We reviewed and covered various topics covered in the HUD Handbook 4155.1 The handbook under 4155.1 (4.C.2.F & 4.C.2.G) speak to foreclosures and bankruptcy chp 7 "separately". i.e. not when one a mortgage is discharged in BK. Then we cruised around the handbook to section 4155.1 (A.8.a-g) Basically CAIVRS is a database of those people that have defaulted or are delinquent on federally guranteed debt. The seasoning requirement on these loans (prior FHA insured loans) is 3 years from when the claim was paid. And since the claim is paid after foreclosure this is when the time period begins. i.e. 3 years from transfer of sale. But this is only for a loan FHA insured. If you have any other "federally guranteed loans" like VA, student loan etc..... that comes into play to if your applying for a new FHA loan. When I asked her about a non FHA mortgage discharged in BK she gave me the obligatory speech that it is not up to them to "interpret" the guidelines. I pretty much said WTF? She indicated if "my" U/W needed clarification of this scenario that they would need to call them to speak to a FHA U/W (in the same building). Again, WTF? I advised her I had no U/W as I didn't want to waste my time applying without knowing the general guidelines. So, as far I can tell if your mortgage was previously a FHA you need 3 years from transfer sale/claim paid. If a conventional loan not associated with a federal guarantee then have your U/W call their U/W and maybe they can do lunch together. I suspect since my contact told me 3 years from discharge that would be the going understanding. But then again, lots of subjectivity can come into play depending on how strong of a borrower you are and what kinda hardship you had.
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This of course, precludes your lender from imposing (layering) their own requirements like the moon must be half full at time of application submission. etc.....

[Ugh07]

As you know the FHA guidelines there is no specific guideline (that I have been privy to) addressing the seasoning requirement of a discharged mortgage in BK whose property was subsequently foreclosed.

Thats exactly why it has been interpreted as 3 years from sale date. As you said FHA doesnt make a distinction so therefore it is treated as a foreclosure and requires 3 years from sale date. Until a few months ago it was still possible to get an "accept" from Total Scorecard with a foreclosure less than 3 years ago and some lenders would close the loan because of the automated underwriting approval. That loophole has been closed though as the underwriting results now flag any foreclosures in the last 36 months and you lose your "accept" finding.

Now someone is going to chime in and say "but my mortgage shows IIB so how can they know?". They will look up public records!

I know there is a desire to believe here but the reality is 3 years from auction/sale date is going to be when you can get a new loan. FHA guidelines are getting tighter as well not looser so dont expect any positive changes anytime soon.

[zxrider]

As noted in my prior post the 3 yr. seasoning is from sale date "if it was a prior FHA loan" or there was any other federal l guaranteed loan defaulted per CARVAIRS.
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When the FHA resource center supervisor responded about a non FHA insured mortgage being foreclosed she referred me back to my underwriter to have them speak to the FHA underwriter for a clarification on that point.
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Meaning, if the loan was a non-FHA loan IIB and foreclosed its not a black/white issue.
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Would it be so difficult for a FHA endorsed underwriter around this blog to call FHA and get the info their mysteriously are keeping so secretive?
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I understand why it may be "interpreted' one way. (because the underwriter is too lazy to contact FHA and uses the worst case scenario) But the supervisor seemed to infer there is a guideline. Just one that only can be extracted from a FHA underwriter by a lender (underwriter) and not the public. Why else would she instruct me to have my Underwriter contact the FHA underwriter.
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Other boards have told me 3 years from discharge date. Maybe its a hit or miss deal. Why does it have to be though.?

[ejhamilton]

FHA loan applications are reviewed and approved on a case by case basis, which is why they cannot give you a direct answer unless they have ALL of the facts. Every case is different. It's never black and white, even with non-FHA. It's a matter of what they can prove on paper, not one's feelings. So though one may "feel" they are a special case, it's if they can prove it on paper.

It's not the underwriter's job to call FHA and use hypothetical worst case scenarios. And you don't have an underwriter, so how can you call them lazy? That doesn't even make sense. If you actually met with a lender & underwriter, they would be able to tell you what you qualify for, instead of bugging FHA trying to get answers to hypothetical scenarios which don't tell the whole story.

Foreclosure and bankruptcy are two separate issues to be dealt with in regards to FHA loans.

You can find most of your answers here:

http://www.fhaoutreach.gov/FHAFAQ/

In regards to foreclosures:

"A borrower whose previous principal residence or other real property was foreclosed or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for a new FHA-insured mortgage. However, if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit since the foreclosure, the lender may grant an exception to the three-year requirement. Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area."

In regards to bankruptcy:

"A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations. The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs. An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner.

Additionally, the lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur. A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower's payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction."

It is a great idea for people post bk to go to a mortgage broker. Yes, it's going to cost you some money, but they can shop hundreds of lenders and figure out your best option.

[Ugh07]

Meaning, if the loan was a non-FHA loan IIB and foreclosed its not a black/white issue.

yes it is. It is 3 years from sale/auction date regardless of it being a conventional or FHA loan. I am not speaking of this in the abstract, this is what I do for a living. There could be some local bank that has an underwriter interpreting the guidelines in the way you speak but a potential borrower would have to just happen to call them. All of the big boys have guidelines exactly how I have stated them.

[Mark80]

I am going through this right now, just trying to get all the information I can to put myself in the best position for a new loan down the road. Speaking with two different brokers, I have been told by both that its 3 years from the date of sale. I had a non-FHA loan btw. There is about 4 months difference between my discharge and sale in foreclosure proceedings, so its not that big a deal for me. But I can see how it would be frustrating for people who really had the sale dragged out.

Just thought I would comment on what I have found out personally, not trying to stir back up the debate. I always figured I would go by the worst case anyways which is probably the safest bet for everyone anyhow.

[bkbirdie]

What if it was a VA loan that was included in chapter 7 bk and then foreclosed? That is my situation. I'm about to stop paying on my VA mortgage. I know I won't be able to get another VA loan, but I was wondering if it is possible to get an FHA loan or USDA loan after 3 years?

[denisec]

Well for kicks I decided to call FHA customer service on this topic. After some vague explanations I spoke to a supervisor who seemed to know her sheeet. We reviewed and covered various topics covered in the HUD Handbook 4155.1 The handbook under 4155.1 (4.C.2.F & 4.C.2.G) speak to foreclosures and bankruptcy chp 7 "separately". i.e. not when one a mortgage is discharged in BK. Then we cruised around the handbook to section 4155.1 (A.8.a-g) Basically CAIVRS is a database of those people that have defaulted or are delinquent on federally guranteed debt. The seasoning requirement on these loans (prior FHA insured loans) is 3 years from when the claim was paid. And since the claim is paid after foreclosure this is when the time period begins. i.e. 3 years from transfer of sale. But this is only for a loan FHA insured. If you have any other "federally guranteed loans" like VA, student loan etc..... that comes into play to if your applying for a new FHA loan. When I asked her about a non FHA mortgage discharged in BK she gave me the obligatory speech that it is not up to them to "interpret" the guidelines. I pretty much said WTF? She indicated if "my" U/W needed clarification of this scenario that they would need to call them to speak to a FHA U/W (in the same building). Again, WTF? I advised her I had no U/W as I didn't want to waste my time applying without knowing the general guidelines. So, as far I can tell if your mortgage was previously a FHA you need 3 years from transfer sale/claim paid. If a conventional loan not associated with a federal guarantee then have your U/W call their U/W and maybe they can do lunch together. I suspect since my contact told me 3 years from discharge that would be the going understanding. But then again, lots of subjectivity can come into play depending on how strong of a borrower you are and what kinda hardship you had.
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This of course, precludes your lender from imposing (layering) their own requirements like the moon must be half full at time of application submission. etc.....

I am trying to figure out the same thing..I am probably going to walk and stopped paying in Nov. 2009, after including my mortgage in my Chapter 7. I am trying to get a loan mod, since Dec. 2009 and that's a joke, it goes on and on, and now that I have had a chance to save some cash and realize why would I want to stay in this house over $70k underwater and needing a lot of work. I called FHA today, and bottom line the seasoning period is up to the lender. I have heard some people getting loans and some not, and someone getting turned down from FHA and then going to their credit union and getting approved for a 30 yr. 4.75% loan. So I guess you try after a couple of years at different options, and then in another year if that doesn't work. I bet it will loosen up though, Fannie has already loosened up its seasoning requirements because they need to unload the inventory on the market. The others will probably follow. BoA could take forever to foreclose on homes - so I agree why should we get stuck with postponed sale dates prior to purchasing another home. With all the strategic defaults and just plain foreclosures, the lending criteria is going to loosen up to get rid of the homes.

[Ugh07]

With all the strategic defaults and just plain foreclosures, the lending criteria is going to loosen up to get rid of the homes.

Lending guidelines are a function of how much money people will put into buying mortgage backed securities and how risky they expect those securities to be. Over the last several years there is no appetite in the secondary market for risky products. Its not like banks dont want to lend to people with sub 620 scores, they just cant because they are not able to sell the bonds on the secondary market. The subprime crisis was brought on by massive amounts of liquidity being pumped into a system whose only way to grow is to lower standards. That money has dried up therefore standards are higher. They will remain that way for years.

[denisec]

You are right on the money Xrider. I have also researched this issue to death, and called FHA. There is no solid rule on this, and the person I spoke with said it's a case by case with the lender. I also included my mortgages in my Chapter 7- discharged in 7/09, and am trying to plan on when I can purchase again....Your explanation is the best I've come across - it makes no sense that the seasoning period should be 3 years from sale date or whatever, who knows when that would be given my lender..and the housing market.

[denisec]

Lending guidelines are a function of how much money people will put into buying mortgage backed securities and how risky they expect those securities to be. Over the last several years there is no appetite in the secondary market for risky products. Its not like banks dont want to lend to people with sub 620 scores, they just cant because they are not able to sell the bonds on the secondary market. The subprime crisis was brought on by massive amounts of liquidity being pumped into a system whose only way to grow is to lower standards. That money has dried up therefore standards are higher. They will remain that way for years.

Well that's not necessarily true, as Fannie Mae is already starting loosen up on their guidelines. And FHA decided not to tighten things up too much. We'll see how this goes in the future, there are many factors involved.