The United States Department of Housing and Urban Development released new standards for manually underwriting FHA mortgage loans. The standards are intended to provide more “definitive underwriting standards” and address five areas: (1) the issue of borrowers who exceed the 31% percent housing-to-income ratio, yet carry little or no discretionary debt and, therefore, do not exceed the maximum 43% debt-to-income ratio; (2) the relationship between compensating factors and “stretch ratios” that permit borrowers to exceed the housing payment and total DTI ratios under certain FHA mortgage insurance programs; (3) additional compensating factors to be used to qualify borrowers who exceed FHA’s DTI ratios; (4) reduction of the credit score below which compensation factors may not be cited and the standard ratio guidelines may not be exceeded; and (5) extension of the applicability of these underwriting policies to FHA-to-FHA rate and term refinance transactions and credit-qualifying streamline refinance transactions. The new requirements are effective for FHA case numbers assigned on or after the date established in a mortgagee letter, but not earlier than March 11, 2014. Comments on the new requirements are due by February 10, 2014.
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