August 17, 2013. By Vincent J. Gallo, Esq., Chair, RCBA Real Property Committee
If one could possibly imagine, the United States Department of Housing and Urban Development issued Mortgagee Letter 2013-26 on August 15, 2013 which, perhaps in an effort to “stay in the game”, summarily allows for Borrowers to qualify for a new FHA mortgage loan only one (1) year after experiencing a foreclosure, deed-in-lieu of foreclosure, short sale or bankruptcy. The Mortgagee Letter was posted on its website at:
While we are still experiencing the fallout of the worst mortgage crisis in history, it appears that the Federal Government is back to its old irresponsible ways. So as to legitimize their reversion back to their old ways, the Mortgagee Letter details the standards necessary to qualify for an FHA mortgage.
In order to qualify for an FHA mortgage a mere one (1) year after experiencing a foreclosure, deed-in-lieu of foreclosure, short sale or bankruptcy, the Borrower must have experienced what is defined in the Mortgagee Letter as an “Economic Event” such as unemployment or a severe reduction in income which is defined therein as a 20% reduction in household income for at least six (6) months.
In addition, the Lender must determine that the Borrower was “sound” before the “Economic Event” took place, and only financially deteriorated thereafter. Furthermore, the Borrower must re-establish “Satisfactory Credit” for at least 12 months prior to procuring a new FHA mortgage.
Furthermore, in order to qualify, the Borrower must receive homeownership education and counseling. Satisfactory Housing Counseling as defined in the Mortgagee Letter requires a mere single hour of one-on-one counseling from an HUD-approved housing counseling agency, which must address the cause of the “Economic Event” and the actions taken to overcome the “Economic Event” and reduce the likelihood of re-occurrence. The counseling must be completed a minimum of 30 days prior to submitting the new loan application, however, no more than six months prior thereto. The Housing Counseling may be conducted in person, by telephone, online, or any other method approved by HUD. These special requirements are in addition to the Borrower having to meet all other FHA applicable criteria.A close and thorough examination of Mortgagee Letter 2013-26 is well in order so as to be conversant on the topic. However, it seems that the more things change, the more they remain the same. A better approach may be for a prospective Borrower to stop, take a deep breath and self-reflect, and say to oneself: “I understand that HUD is doing everything to get me back in the game, but the last game was so devastating, perhaps I should consider just sitting this one out. Maybe I know better as to what is good for me than HUD”. Not everyone is meant to be a homeowner. There is nothing wrong with being a renter. Just a thought.
You can download the opinion HERE.