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What does FHA Score Card Mean
What does FHA Score Card Mean? Is that HUD GUIDELINES?
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The FHA scorecard is the TOTAL Mortgage Scorecard of Technology Open to Approved Lenders utilized by lenders in underwriting FHA loans. It assesses a borrower’s credit risk through factors such as the debt-to-income ratio, payment history, or even credit score. On one hand, it has been designed to determine whether an application should be approved automatically or if it requires manual underwriting.
FHA Score Card is loosely related to HUD rules, but this automated underwriting system is specific. Here’s what I mean:
FHA Score Card:
This is an automated mortgage loan scoring system for Federal Housing Administration (FHA) loans.
We are officially called TOTAL (Technology Open To Approved Lenders) Mortgage Scorecard.
Purpose:
Assess creditworthiness on applications for FHA loans.
Provide an initial assessment of the risk associated with the request for mortgage financing.
How does it work? Look at the applicant’s credit report, income, assets, and other considerations. Produces either an “Accept” or “Refer” recommendation.
Relationship to HUD:
Created by HUD for use with FHA loans.
Conforms to HUD’s criteria for approval of FHA mortgages.
“Accept” recommendation:
- This indicates that HUD, the parent of FHA, set minimum standards.
- HUD guidelines regarding the likelihood of defaulting on repayment obligations based on current financial conditions have been met.
- It requires some data points to be verified manually by the lender even though they are received electronically from sources such as IRS transcripts showing income tax returns filed.
“Refer” recommendation:
- Refer/eligible finding per AUS means manual underwriting is required.
- It does not necessarily result in denial.
- It only means a closer look is needed.
Factors considered:
- Payment history in the past 24 months.
- Credit score.
- Debt-to-income ratio.
- Cash reserves.
- Loan-to-value ratio.
Advantages:
- Speeds up processing time during the loan approval process.
- If humans do it entirely, it can take months without automated systems like this.
- It may only sometimes agree quickly enough due to the nationwide volume processed daily.
- It ensures equal treatment for all applicants across different lenders.
- Applying the same rules uniformly regardless of where the borrower lives or which institution provides financing.
Not the final decision:
It’s not an arbiter in deciding whether loans should be approved but rather a tool lenders use to help them make such decisions.
Lenders have discretion when approving mortgage applications, regardless of what the FHA Score Card says.
Updates:
Scorecards change over time as new FHA policies are implemented and HUD revises old ones.
Accessibility:
Different loan origination systems enable FHA-approved lenders to access this system.