Medical collections are not included in this as FHA has defined that obligations not considered debt include: Medical collections. The guidance differs depending on whether you have a DU approval or manual underwrite as well as whether the derogatory account is disputed.

FHA total scorecard accept:

(M) Collection Accounts (TOTAL)

(1) Definition A Collection Account refers to a Borrower’s loan or debt that has been submitted to a collection agency by a creditor.

(2) Standard If the credit reports used in the TOTAL Mortgage Scorecard analysis show cumulative outstanding collection account balances of $2,000 or greater, the Mortgagee must:

verify that the debt is paid in full at the time of or prior to settlement using acceptable sources of funds;
verify that the Borrower has made payment arrangements with the creditor and include the monthly payment in the Borrower’s DTI; or
if a payment arrangement is not available, calculate the monthly payment using 5 percent of the outstanding balance of each collection and include the monthly payment in the Borrower’s DTI.

Collection accounts of a non-borrowing spouse in a community property state must be included in the $2,000 cumulative balance and analyzed as part of the Borrower’s ability to pay all collection accounts, unless excluded by state law.

(3) Required Documentation The Mortgagee must provide the following documentation:

evidence of payment in full, if paid prior to settlement;
the payoff statement, if paid at settlement; or
the payment arrangement with creditor, if not paid prior to or at settlement.

If the Mortgagee uses 5 percent of the outstanding balance, no documentation is required.

(A) Collection Accounts, Charge Off Accounts, Accounts with Late Payments in the Previous 24 Months, and Judgments (TOTAL) The Mortgagee is not required to obtain an explanation of collection accounts, Charge Off Accounts, accounts with late payments, Judgments or other derogatory information.

(B) Disputed Derogatory Credit Accounts (TOTAL)

(1) Definition Disputed Derogatory Credit Account refers to disputed Charge Off Accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months. Exclusions from cumulative balance include:

disputed medical accounts; and
disputed derogatory credit resulting from identity theft, credit card theft or unauthorized use. To exclude these balances, the Mortgagee must include a copy of the police report or other documentation from the creditor to support the status of the accounts.

(2) Standard If the credit report utilized by TOTAL Mortgage Scorecard indicates that the Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts, the Mortgage must be downgraded to a Refer and manually underwritten. Disputed Derogatory Credit Accounts of a non-borrowing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a Refer.

FHA Manual underwrite:

(D) Collection Accounts (Manual)

(1) Definition A Collection Account is a Borrower’s loan or debt that has been submitted to a collection agency through a creditor.

(2) Standard The Mortgagee must determine if collection accounts were a result of:

the Borrower’s disregard for financial obligations;
the Borrower’s inability to manage debt; or
extenuating circumstances.

(3) Required Documentation The Mortgagee must document reasons for approving a Mortgage when the Borrower has any collection accounts. The Borrower must provide a letter of explanation, which is supported by documentation, for each outstanding collection account. The explanation and supporting documentation must be consistent with other credit information in the file.

(F) Disputed Derogatory Credit Accounts (Manual)

(1) Definition Disputed Derogatory Credit Account refers to disputed Charge Off Accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.

(2) Standard The Mortgagee must analyze the documentation provided for consistency with other credit information to determine if the derogatory credit account should be considered in the underwriting analysis. The following items may be excluded from consideration in the underwriting analysis:

disputed medical accounts; and
disputed derogatory credit resulting from identity theft, credit card theft or unauthorized use provided the Mortgagee includes a copy of the police report or other documentation from the creditor to support the status of the account in the mortgage file.

(3) Required Documentation If the credit report indicates that the Borrower is disputing derogatory credit accounts, the Borrower must provide a letter of explanation and documentation supporting the basis of the dispute. If the disputed derogatory credit resulted from identity theft, credit card theft or unauthorized use balances, the Mortgagee must obtain a copy of the police report or other documentation from the creditor to support the status of the accounts.

(L) Disputed Derogatory Credit Accounts (Manual)

(1) Definition Disputed Derogatory Credit Accounts refer to disputed Charge Off Accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.

(2) Standard If the Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts, the Mortgagee must include a monthly payment in the Borrower’s debt calculation. The following items are excluded from the cumulative balance:

disputed medical accounts; and
disputed derogatory credit resulting from identity theft, credit card theft or unauthorized use.

Disputed Derogatory Credit Accounts of a non-borrowing spouse in a community property state are not included in the cumulative balance.

(O) Collection Accounts (Manual)

(1) Definition A Collection Account refers to a Borrower’s loan or debt that has been submitted to a collection agency by a creditor.

(2) Standard If the credit reports used in the analysis show cumulative outstanding collection account balances of $2,000 or greater, the Mortgagee must:

verify that the debt is paid in full at the time of or prior to settlement using an acceptable source of funds;
verify that the Borrower has made payment arrangements with the creditor; or
if a payment arrangement is not available, calculate the monthly payment using 5 percent of the outstanding balance of each collection and include the monthly payment in the Borrower’s DTI ratio.

Original question:

Can you post and keep in the FAQ what the tolerances are for collections (medical and non-medical) that need paid off, what payments to use, etc for each program?

They used to be in the coop, but no longer there.