FHA Back to Work Program Required Counseling

January 3, 2014

When the Department of Housing and Urban Development announced the FHA’s Back to Work program, it was very good news for any potential FHA loan applicant who may have experienced previous “Economic Events” or related fiscal hardship (and/or lowered FICO scores) as a result of the recession.

FHA Mortgagee Letter 2013-26 says the FHA Back To Work program lets lenders evaluate these Economic Events to see if the borrower may still be a good credit risk for an FHA loan. “FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

The mortgagee letter says the FHA is “allowing for the consideration of borrowers who have experienced an Economic Event and can document that:

certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
the borrower has demonstrated full recovery from the event; and,
the borrower has completed housing counseling.”

The required counseling is an important part of the Back To Work program offered by the FHA, but many aren’t sure where to look for this counseling. The FHA official site says any such counseling session must meet certain requirements.

“To qualify for purposes of establishing Satisfactory Credit following an Economic Event, participants in this FHA initiative must:

• receive homeownership counseling or a combination of homeownership education and counseling provided that each participant receives, at a minimum, one hour of one-on-one counseling from HUD-approved housing counseling agencies, as defined at 24 C.F.R. 214.100.”

“The counseling must address the cause of the economic event and the actions taken to overcome the economic event and reduce the likelihood of reoccurrence. The housing education may be provided by HUD-approved housing counseling agencies, state housing finance agencies, approved intermediaries or their sub-grantees, or through an on-line course, and

• be completed a minimum of thirty (30) days but no more than six (6) months prior to submitting a loan application to a lender, as application is defined in Regulation X, implementing the Real Estate Settlement Procedures Act, 24 C.F.R. 3500.2(b).”

FHA Back To Work counseling “may be conducted in person, via telephone, via internet, or other methods approved by HUD, and mutually agreed upon by the borrower and housing counseling agency, as provided for in the regulations at 24 CFR 214.300 and in the Housing Counseling Handbook.”