Must a mortgage be downgraded to a Refer and manually underwritten when there is an undisclosed mortgage debt?

When an existing debt or obligation that is secured by a Mortgage but is not listed on the credit report and not considered by the Automated Underwriting System (AUS) is revealed during the application process, the Mortgagee must obtain a verification of Mortgage directly from the Servicer.
 
The Mortgage must be downgraded to a Refer and manually underwritten if the mortgage history reflects:
  • a current delinquency;
  • any delinquency within 12 months of the case number assignment date; or
  • more than two 30-Day late payments within 24 months of the case number assignment date.
A Mortgage that has been modified must utilize the payment history in accordance with the modification agreement for the time period of modification in determining late Mortgage Payments.
 
For FHA policy information see Handbook 4000.1 II.A.4.b.iv(C) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-03638