In order to allow Mortgagees additional time to adapt their procedures to implement portions of the new guidance the new effective date of this section
is delayed until July 1, 2012
If the total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts (e.g. entered into payment arrangements with minimum three months verified payments paid as agreed) or paid in full at the time of, or prior to closing. Mortgagees must document the case binder showing each account was resolved or paid in full.
If the total outstanding balance of all collection accounts is less than $1,000 the borrower is not required to pay off the collection accounts as a condition of mortgage approval. FHA has also said that non-purchasing spouse collections will apply as well.
FHA continues to require judgments to be paid off before the mortgage loan is eligible for FHA insurance.
In General, If the collection is isolated and due to extenuating circumstance we will not require payoff.
We will need four pieces of information:
1. Borrower must explain the nature of the collections
2. Explanation must be consistent with all file information
3. Collections must be isolated
4. File must be documented.