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FHA gives borrowers flexibility to combat “unnecessary” effects of COVID-19 pandemic

The administration told lenders it will grant underwriting flexibility to borrowers who suffered financially as a result of the pandemic

The Federal Housing Administration (FHA) is making it easier for homebuyers financially affected by COVID-19 to qualify for a loan.

The administration told lenders Thursday it will grant underwriting flexibility in cases in which a borrower experienced a gap in employment or a reduction of income as a result of the pandemic — but has since financially recovered.

The flexibilities, which can be immediately implemented by lenders, mainly are expected to help hourly wage-earners, as well as self-employed borrowers.

Julia Gordon, commissioner of the FHA, in a Thursday statement said the changes will, “further efforts to facilitate recovery from COVID-19 and support access to homeownership.”

“The pandemic affected the livelihoods of tens of millions of workers in this country, particularly workers of color and those at the lower end of the wage scale,” Gordon said. “Limiting these families’ homeownership opportunities because of the unavoidable impacts of an unprecedented global health crisis, when they are otherwise well-qualified for a mortgage, is unnecessary.”

The FHA has outlined exceptions in how a borrowers effective income is calculated if they were impacted by the pandemic and the documentation required for gaps in a borrowers employment history.


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In cases where a borrower has an hourly income and whose hours do not vary, the FHA said lenders should use a borrowers current hourly rate to calculate effective income.

For employees whose hours vary, FHA representatives said lenders should calculate income by using the lesser of a borrower’s average income prior to the pandemic, or the average of the income earned since the pandemic began.

Self-employed borrowers must submit an aggregate self-employment history before and after the pandemic-related event totaling two years, the administration said. A lender may only consider the income as effective if the borrower has remained in the same line of work.

To address gaps in employment during the under underwriting process, lenders must provide written verification from a borrower identifying the time period when a homebuyer lost their job and the loss of income as a result.

According to the FHA, for self-employed borrowers whose income was impacted by the pandemic, lenders must upload a letter of explanation for the time period of income loss and the borrower’s business tax returns for the most recent two years.

The FHA said the announced flexibilities are expected to “mitigate” or “offset potential risk of default”, while maintaining the administration’s countercyclical role in the market.

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