FHA Lending Tightening

If you are currently in a chapter 13 can you qualify for an FHA mortgage? 

The chapter 13 plan was approved but with the debtor surrendering the 2 properties that have NOT been offically foreclosed.

Can the trustee help the debtor by not letting the mortgage company pursue foreclosure since the properties are surrendered and the mortgage companies did not object to the confirmation plan?

Also there was a pending lawsuit that made it difficult beyond the debtor’s control to hold the properties thus surrendering and moved toward confirmation of debtor’s plan.

FHA guidelines stupilate that you can’t have any foreclose property for 3 years but will consider if the foreclosure happened beyond the debtor control. The debtors original filings have all been to pay back 100% to creditors but couldn’t due to lawsuit.  The debtor has strong employment and hasn’t missed any payments to chpter 13. 

Any advise????

Ana

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Hi Ana,

That’s a complex scenario and I don’t know if you’re trying to purchase or refinance through FHA.  I’d say that both would be difficult and the most probable answer is no.

A borrower can qualify for FHA financing after one year worth of payments in a Chapter 13; however, the properties surrendered would be treated as foreclosures and the three-year foreclosure seasoning rule would most likely apply without exception in your scenario.

Lenders are tightening FHA guidelines as a result of record FHA loan defaults.  And not only that but the FHA guidelines, as issued by the Department of HUD, have also tightened.  Up until this month it was possible to obtain a 95% LTV cash out refinance and now that has been limited to 85%.  In Mortgagee Letter 2009-08 which announced this recent change, the following was also cited:

“Given the continued deterioration in the housing market, and FHA’s need to limit its exposure to undue risk, this reduction to the maximum LTV for cash-out refinances is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken.”

Thanks for the questions and hope this helps.

Paul