HUD Issues Underwriting Guidance for Disaster Victims

WASHINGTON - In response to what it described as "the unprecedented destruction caused by recent natural disasters," the U.S. Department of Housing and Urban Development announced it is relaxing several existing policies for disaster victims that are applicable for one year from the date Pres. Bush declared an area a disaster. In its Mortgagee Letter 2006-01, HUD wrote that "The FHA believes that while there is certain risk associated with these temporary credit policy revisions, that risk is greatly outweighed by the need to assist disaster victims." The agency further stated that, "Since many borrowers affected by a disaster will experience difficulty in providing traditional documentation regarding employment and funds for closing due to the disaster, lenders should be as flexible as prudent decision making permits when applying FHA's underwriting and documentation requirements. "To the extent possible" HUD advises lenders to be accommodating to borrowers eligible for Section 203(h) concerning gaps in employment, documentation for employment and funds available, and qualifying ratios. Lenders should also be accommodating to borrowers when evaluating recent derogatory credit, bankruptcy, foreclosure, deed-in-lieu of foreclosure and delinquent federal obligations that were reported into HUD's Credit Alert Interactive Voice Response System that were the direct result of a disaster. "The guiding principle should be to provide FHA financing to disaster victims who can make mortgage payments but may not have all the traditional documentation as proof of their ability to do so," the Mortgagee Letter reads.