| a. | General. Accounts listed as "rate by mail only" or "need written authorization" require separate verification. Each account with a balance must have been checked with the creditor within 90 days of the date of the credit report. The borrower must explain all inquires shown on the credit report for the last 90 days. |
| b. | Recent Debts. The lender must ascertain whether any recent debts were incurred to obtain part of the required cash investment on the property being purchased. |
| c. | Projected Increase in Obligations. The projected increase in the borrower’s housing expense from the present housing expense must be carefully analyzed. If the new housing expense will significantly exceed the previous housing expense and the borrower has not exhibited an ability to accumulate savings or otherwise manage financial affairs, strong compensating factors must be present to allow for borrower approval. (The projected mortgage interest deduction on the borrower’s federal income tax return, while beneficial to the borrower, is not a compensating factor and may not be included in the analysis.) |
| d. | Payment History on Previous Mortgages. If the lender uses the credit report for this verification, it must cover at least the previous 12 months of activity. |
| e. | Undisclosed Debt. If the credit report reveals significant debt not disclosed on the application, the borrower may have been attempting to conceal liabilities to qualify for the mortgage. The borrower must provide a written explanation for the omission. |
| f. | Revolving Accounts. When revolving accounts with outstanding balances do not have stated minimum payments, payments should be calculated at the greater of five percent of the outstanding balance or $10 per month. |
| g. | Judgments, Garnishments, or Liens. Any judgments, garnishments, or liens must be paid in full before closing. The borrower must furnish a satisfactory letter of explanation and must have reestablished good credit. |
| h. | Bankruptcy. The bankruptcy must have been discharged fully, and the borrower must have reestablished good credit and demonstrated an ability to manage financial affairs. There must be at least two years between the discharge of the bankruptcy and the mortgage application. A shorter elapsed time–but not less than 12 months–is justified if the lender is able to document that extraordinary circumstances caused the bankruptcy (such as an extended illness that was not covered by health insurance) and that the borrower’s current situation is such that the events that led to the bankruptcy are not likely to recur. In all cases, the lender must have sufficient documentation to support the decision that the borrower is credit worthy. |
A borrower paying off debts under Chapter 13 of the Bankruptcy Act or making payments through a Consumer Credit Counseling plan may also qualify if:
| 1. | One year of the pay-out period has elapsed and performance has been satisfactory; and |
| 2. | The borrower receives court approval (if Chapter 13) to enter into the mortgage transaction. |
| i. | Previous Mortgage Foreclosure. Generally, HUD will not guarantee a mortgage if the borrower has been a defendant in mortgage foreclosure proceedings that were completed within the past three years. However, an exception may be made if the foreclosure was the result of extenuating circumstances that were beyond the control of an owner-occupant borrower and the lender’s underwriting confirms that the borrower has re-established good credit and has demonstrated an ability to manage financial affairs. This exception does not apply if the borrower used the foreclosed property as a second home or for investment purposes. |
| j. | Suspensions and Debarment. A borrower suspended, debarred, or otherwise excluded from participation in the Department’s other programs is not eligible for a Section 184 mortgage. The lender must examine HUD’s "Limited Denial of Participation (LDP) List" and the Government-wide General Services Administration’s (GSA’s) "List of Parties Excluded from Federal Procurement or Nonprocurement Programs." If the name of any party to the transaction appears on either list, the application is not eligible for a loan guarantee. (An exception is made when a seller appears on the LDP list and the property being sold is the seller’s principal residence.) |
| k. | Delinquent Federal Debts. If the borrower is presently delinquent on any federal debt (e.g., U.S. Department of Veterans Affairs (VA)-guaranteed mortgage, HUD/FHA insured or guaranteed mortgage, HUD Section 312 Rehabilitation loan or Title I loan, federal student loan, Small Business Administration loan, delinquent federal taxes) or has a lien, including taxes, placed against property for a debt owed to the United States, the borrower is not eligible until the delinquent account is brought current, paid, or otherwise satisfied, (e.g., satisfactory repayment plan is made between the borrower and the federal agency owed). Lenders must verify through HUD’s Credit Alert Interactive Voice Response System (CAIVRS) that borrowers are not presently delinquent on any federal debt. To obtain additional information about CAIVRS and a CAIVRS access number, lenders should contact their local HUD Office or the Program ONAP. |
| l. | HUD’s Credit Alert Interactive Voice Response System (CAIVRS). Lenders must screen all borrowers by using CAIVRS. If CAIVRS indicates the borrower is presently delinquent or has had a claim paid within the previous three years on a loan made or insured by HUD, the borrower is not eligible. Exceptions may be granted under the following circumstances: |
| 1. | Assumptions. If the borrower sold the property with or without a release of liability to a mortgagor who subsequently defaulted and the loan was not in default at the time of the assumption, the borrower is eligible. |
| 2. | Divorce. A borrower may be eligible if the divorce decree or legal separation agreement awarded the property and the responsibility for payment to the former spouse. |
| 3. | Bankruptcy. When the property was included in a bankruptcy caused by circumstances beyond the borrower’s control (such as the death of the principal wage earner, loss of employment due to illness, etc.), the borrower may be eligible. |
