When using TOTAL Scorecard, what are FHA’s policies on a purchase, no cash-out or cash-out refinance when a borrower has been granted a Forbearance?

Housing Obligation/Mortgage Payment refers to the monthly payment due for rental or Properties owned.
 
A Mortgage Payment is considered delinquent if not paid within the month due.
 
A Borrower who was granted a Mortgage Payment Forbearance and continues to make payments as agreed under the terms of the original Mortgage and Note is not considered delinquent or late and shall be treated as if not in Forbearance, provided the Forbearance Plan is terminated at or prior to closing.
     
Late Mortgage Payments for Purchase and No Cash-Out Refinance
The Mortgage must be downgraded to a Refer and manually underwritten if any mortgage trade line, including mortgage line-of-credit payments, during the 12 months prior to case number assignment reflects:
  • three or more late payments of greater than 30 Days;
  • one or more late payments of 60 Days plus one or more 30-Day late payments;
  • one payment greater than 90 Days late, or
  • that the borrower has made less than 3 consecutive monthly payments since completion of a Mortgage Forbearance Plan.
For both Purchase and No Cash-Out Refinance Transactions, a Mortgage that has been modified must utilize the payment history in accordance with the Modification Agreement for the time period of the modification in determining late housing payments.  In addition, where a Mortgage has been modified, the Borrower must have made at least six payments under the modification agreement to be eligible for a No-Cash Out Refinance.
 
A Mortgage that has been granted forbearance must utilize the payment history in accordance with the Forbearance Plan for the time period of forbearance in determining late housing payments. Where any mortgage in forbearance will remain open after the closing of the new FHA-insured mortgage, the Forbearance Plan must be terminated at or prior to closing.

Any borrower who is granted a forbearance and is otherwise performing under the terms of the Forbearance Plan is not to be considered delinquent for the purposes of credit underwriting.

 
Cash-Out Refinance Transactions
The Mortgage must be downgraded to a Refer and manually underwritten if any mortgage trade line, including mortgage line-of-credit payments, reflects:
  • a current delinquency;
  • any delinquency within 12 months of the case number assignment date; or
  • the borrower has made less than 12 monthly consecutive payments since completion of a Mortgage Forbearance Plan.
A Mortgage that has been modified must utilize the payment history in accordance with the Modification Agreement for the time period of the modification in determining late housing payments.
 
Where a Borrower who was granted a Mortgage Payment Forbearance and continues to make payments as agreed under the terms of the original Note, the Mortgage is not required to be downgraded to a Refer provided the Forbearance Plan is terminated at, or prior to, closing.
 
Required Documentation
Where a Mortgage reflects payments under a Modification or Forbearance Plan within the 12 months prior to case number assignment, the Mortgagee must obtain:
  • a copy of the Modification or Forbearance Agreement; and
  • evidence of the payment amount and date of payments during the agreement term.
Forbearance Plan is not required if the forbearance was due to the impacts of the COVID-19 pandemic.

For additional information see: 

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-05578