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The alternative guidance in Mortgagee Letter 2013-26 is effective for purchase applications with
case numbers assigned on or after August 15, 2013 through September 30, 2016.
All delinquent accounts and indications of derogatory credit, including collections and judgments,
bankruptcies, foreclosures, deeds-in-lieu, short sales, and other credit problems must be analyzed.
The lender must review the credit report and determine whether derogatory credit was the result of
• The borrower exhibited Satisfactory Credit prior to the Economic Event Onset;
• The borrower’s derogatory credit occurred after the Economic Event Onset, and
• The borrower has re-established Satisfactory Credit for a minimum of twelve (12) months.
Foreclosure, Short Sale, Deed in Lieu, Bankruptcy
In all cases, the lender must verify that the derogatory credit was the result of an Economic Event
and document that a minimum of 12 months has elapsed since the date of the:
• deed in lieu
• short sale
• discharge of Chapter 7 bankruptcy
Chapter 13 Bankruptcy
The lender must verify and document that
• the Chapter 13 bankruptcy was discharged prior to loan application and all required bankruptcy
payments were made
• a minimum of 12 months of the pay-out period under the bankruptcy has elapsed and all required
bankruptcy payments were made on time, and
• the bankruptcy was the result of an Economic Event
If the bankruptcy was not discharged prior to loan application, the borrower must receive written
permission from the
Bankruptcy Court to enter into the mortgage transaction.
Important Back to Work Definitions
HUD announced several key terms that must be reviewed in accordance with this program.
Economic Event: an occurrence beyond the borrowers control that resulted in a Loss of Employment, Loss of Income or a combination of both which resulted in a loss of Household Income of 20% or more for a period of six or more months.
Onset of Economic Event: the month of the start of or loss of income.
Recovery from an Economic Event: the re-establishment of acceptable or satisfactory credit. Satisfactory Credit equates to no derogatory credit for any mortgaged or leased property in the 12 months preceding the mortgage application. This also includes any installment or revolving debt for the same period.
Borrower: “Borrower” includes all parties including primary and/or co-borrower as listed on the loan application.
Borrower Household Income: the income of all parties on the application or Household Members as listed from the previous Economic Event and derogatory credit.
Housing Counseling: Counseling from a HUD-approved housing counseling agency related to home ownership and meets acceptable requirements.