FHA and HUD Announce New FHA Home Loan Approval Rules
Such relief has been temporary in nature, but the new rules announced by the FHA indicate a permanent modification to certain FHA loan rules related to how the lender is to approve new mortgage loan applications for borrowers who have applied for home loan forbearance in the past.
FHA Mortgagee Letter 2020-20, FHA Underwriting Guidelines for Borrowers with previous Mortgage Payment Forbearance, announces alterations to FHA’s underwriting guidelines for mortgages “involving Borrowers who were granted a Previous Mortgage Forbearance on the subject property or other residence.”
What do the new guidelines tell the lender about home loan approval in such cases?
The new rules are dependent on “successful completion of the Forbearance” and acknowledges that even after such loan forbearance, “there may be the need and the opportunity for the borrower to refinance the existing mortgage to a lower interest rate,thereby lowering the monthly mortgage payment,or to a shorter term.” Furthermore, some borrowers may need to find a new home rather than simply refinancing the old one.
There are several sections of the new rules worth examining--we’ll explore them in detail in another article, but one of the most important aspects of the new rules states that a borrower who was offered a home loan forbearance, “...and continues to make payments as agreed under the terms of the original Note” is not considered a delinquent borrower for the purposes of applying for a new mortgage.
This is true in cases where the loan forbearance agreement is terminated at or prior to closing day. Different types of home loans may feature different requirements, here is an example of some of those from the FHA/HUD press release--those eligible for this type of mortgage relief qualify when:
- The borrower continued to make regularly scheduled payments and the forbearance program has ended.
- FHA Cash-Out refinances require the borrower to complete the Forbearance Plan and must have made at least 12 consecutive monthly payments after the forbearance ends.
- For Purchase and No Cash-Out refinances, the borrower must have completed the Forbearance Plan and made at least three consecutive monthly payments once the forbearance is over.
- For Credit Qualifying Streamline refinance, the borrower must have completed the Forbearance Plan and made less than three consecutive monthly payments after the forbearance.
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