The underwriter must examine the Borrower's overall pattern of credit behavior, not just isolated unsatisfactory or slow payments, to determine the Borrower's creditworthiness. The underwriter must evaluate the Borrower's payment histories in the following order:
- previous housing expenses and related expenses, including utilities;
- installment debts; and
- revolving accounts.
The underwriter may consider a Borrower to have an acceptable payment history if the Borrower has made all housing and installment debt payments on time for the previous 12 months and no more than two 30-Day late mortgage or installment payments in the previous 24 months.
A Borrower who was granted a Mortgage Payment Forbearance and continues to make payments as agreed under the terms of the original Note is not considered delinquent or late and shall be treated as if not in forbearance provided the Forbearance is terminated at, or prior to, closing.
The underwriter may approve the Borrower with an acceptable payment history if the Borrower has no major derogatory credit on revolving accounts in the previous 12 months.
Major derogatory credit on revolving accounts must include any payments made more than 90 Days after the due date, or three or more payments more than 60 Days after the due date.
If a Borrower’s credit history does not reflect satisfactory credit as stated above, the Borrower’s payment history requires additional analysis.
The Mortgagee must analyze the Borrower’s delinquent accounts to determine whether late payments were based on a disregard for financial obligations, an inability to manage debt, or extenuating circumstances. The Mortgagee must document this analysis in the mortgage file.
Any explanation or documentation of delinquent accounts must be consistent with other information in the file. An underwriter may approve a Borrower with a credit history that doesn’t meet the satisfactory credit history described above, only if the delinquency was related to extenuating circumstances.
For additional information see:
- Handbook 4000.1 II.A.5.a.iii available at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh
- Mortgagee Letter 2020-30 available at: https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee