How are disputed collection accounts considered for manually underwritten FHA mortgage lenders?

SELF EMPLOYED MORTGAGE LENDERS QUESTIONS AND ANSWERSCategory: FHA QuestionsHow are disputed collection accounts considered for manually underwritten FHA mortgage lenders?
Thomas Martin Staff asked 2 years ago
How are disputed collection accounts considered for manually underwritten FHA mortgage lenders?

 

Disputed Derogatory collection Account refers to disputed charge off accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.   If the collection report indicates that the FHA Mortgage Applicants is disputing derogatory collection accounts, the FHA Mortgage Applicants must provide a letter of explanation and documentation supporting the basis of the dispute.   If the disputed derogatory collection resulted from identity theft, collection card theft or unauthorized use balances, the FHA mortgage lender must obtain a copy of the police report or other documentation from the collection or support the status of the accounts.  If the FHA Mortgage Applicants has $1,000 or more collectively in Disputed Derogatory collection Accounts, the FHA mortgage lender must include a monthly payment in the FHA Mortgage Applicants’ debt calculation.  
Below items are excluded from the $1,000 cumulative balance: 
•     All Disputed medical accounts
•     All disputed derogatory collection resulting from identity theft, collection card theft or unauthorized use provided you have a police report. 
•     Accounts of a non-borrowing spouse in a community property state  If an FHA Mortgage Applicants is disputing non-derogatory accounts or is disputing accounts which are not indicated on the collection report as being disputed, the FHA mortgage lender must analyze the effect of the disputed accounts on the FHA Mortgage Applicants’ ability to repay the loan. If the dispute results in the FHA Mortgage Applicants’ monthly debt payments utilized in computing the DTI ratio is less than the amount indicated on the collection report, the FHA Mortgage Applicants must provide documentation of the lower payments. 

Non-Derogatory Disputed Accounts include the following types of accounts: 
•     disputed accounts with zero balance; 
•     disputed accounts with late payments aged 24 months or greater; or 
•     disputed accounts that are current and paid as agreed.  For additional information see Handbook 4000.1 at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

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