How are Charge Off Accounts considered in the evaluation of a HECM borrower's credit history?

A charge off account refers to a HECM borrower’s loan or debt that has been written off by the creditor.

If charge off accounts appear on record, even if more than 24 months old, the lender must determine if charge off accounts were a result of:
• the borrower’s disregard for financial obligations;
• the borrower’s inability to manage debt; or
• extenuating circumstances.

The lender must document reasons for approving a borrower for a HECM when the borrower has any charge off accounts.

The HECM borrower must provide a letter of explanation, which is supported by documentation, for each outstanding charge off account. The explanation and supporting documentation must be consistent with other credit information in the file.

For additional information see Mortgagee Letter 2016-10 and the attached revised HECM Financial Assessment and Property Charge Guide, Section 2.18 at

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-04706