The Federal Housing Administration (FHA) waived a requirement it determined does not improve risk management and is often a barrier to certain borrowers who would otherwise qualify for a home loan. Starting for cases pending endorsement on or after Sept. 11, FHA-approved mortgagees will no longer be required to flag rejected loans in the FHA Connection (FHAC) system.
“FHA has determined that this flag does not improve risk management and is often why other lenders will reject an applicant even when that applicant might otherwise qualify for a loan,” the agency stated in a release. “Currently, when a mortgagee rejects a borrower’s application for an FHA-insured mortgage, the denial information must be entered on the Mortgage Credit Reject (MCR) screen in FHAC. This action generates a warning flag associated with both the case number and the borrower for a six-month period, requiring a review by the jurisdictional Homeownership Center when a borrower applies for an FHA-insured loan from another lender during this timeframe.”
Removing the requirement for lenders to enter rejection information in FHAC streamlines the loan underwriting process, FHA added, and eliminates an unnecessary barrier for borrowers looking to obtain FHA-insured financing. The MCR screen will no longer be available starting that same Sept. 11 date, and any MCR case warning flags will be removed from cases pending endorsement.
The waiver will become a permanent policy in the FHA’s future Single Family Housing Policy Handbook.
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