Yes; however, medical collections are excluded.

Collection accounts. Collection accounts, as outlined in Paragraph 10.9 of Chapter 10 of this Handbook will be included in the total debt ratio.

Capacity analysis when collections are reported – all underwriting types.
Unpaid open collections could affect the future ability of an applicant to repay a mortgage when creditors pursue collection. Ensure all collections and charge-offs are listed on the loan application as a liability. Collections meeting the omission policy noted below can be omitted from the total debt to income ratio. Additional documentation is not required to omit those collections meeting criteria below.

In an effort to minimize future risk of open collections left unpaid, the lender will consider the following during the capacity analysis of the loan request, regardless of the method utilized to underwrite:

1) Determine if the total outstanding balance of all collections accounts of all applicants is equal to or greater than $2,000. Unless excluded by state law, collection accounts of a non-purchasing spouse in a community property state are included in the cumulative balance of all collections.

2) Remove all medical collections and all types of charge off accounts from the total balance. Medical collections and charge off accounts must be clearly identifiable on the credit report.

3) If the remaining outstanding balance of collection accounts are equal to or greater than $2,000, any of the following actions will apply:

a. Payment in full of all collection accounts at or prior to closing.

b. Payment arrangements are made with each creditor for each collection account remaining outstanding. A letter from the creditor or evidence on the credit report is required to validate the payment arrangements. The agreed upon monthly payment for each outstanding collection account will be included in the borrower’s debt-to-income ratio.

c. In the absence of a payment arrangement, the lender will utilize in the debt-to-income ratio a calculated monthly payment. For each collection utilize 5% of the outstanding balance to represent the monthly payment.

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