The FHA has a new program called Back To Work, designed to help borrowers who have experienced what the FHA terms an Economic Event that resulted in negative credit information but may not necessarily be an accurate indicator of a borrower’s creditworthiness or ability to repay the FHA mortgage.
Back To Work, according to FHA Mortgagee Letter 2013-26, 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. To that end, 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 last line in that quote is very important. The FHA Back To Work requirements include housing counseling–the borrower must complete such counseling in order to qualify for Back To Work. “Housing counseling is an important resource for both first-time home buyers and repeat home owners. Housing counseling enables borrowers to better understand their loan options and obligations, and assists borrowers in the creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower” according to the mortgagee letter.
How does a borrower fulfill this counseling requirement? Mortgagee Letter 2013-26 says, “Housing Counseling, for purposes of this ML, means counseling from a HUD-approved housing counseling agency related to homeownership and residential mortgage loans that is provided in accordance with 24 C.F.R. part 214 “Housing Counseling Program” and satisfies the requirements identified in Satisfactory Housing Counseling.”
Additionally, “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”
For more information on this requirement, contact a loan officer or the FHA directly at 1-800 CALL FHA.
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