This Article Is About How Are Medical Collections During Mortgage Process Treated
Medical collections are treated differently versus non-medical collections during the mortgage process. Medical collections are often treated very leniently by mortgage underwriters. Most medical collections are often ignored by underwriters no matter how much the outstanding balance is. In this article, we will discuss and cover how mortgage underwriters treat medical versus non-medical collections.
How Outstanding Collection Accounts Are Treated By Mortgage Underwriters
Homebuyers can qualify for a mortgage with outstanding collection and charged-off accounts. Borrowers do not have to pay outstanding collections and charged-off accounts to qualify for FHA Loans. Collection Agencies are agencies that either own the debtor are representing creditors who have not been paid by the debtors. Creditors have assigned the account to either their collection department and/or an outside third-party collection agency.
- A mortgage applicant can still get a mortgage with open unsatisfied collection and charged-off accounts
- Borrowers do not have to pay off a collection account with a credit balance in order to qualify for FHA Loans
However, lenders classify collection accounts into two categories:
- Non-medical collections
- Medical collection accounts
FHA Guidelines On Non-Medical Versus Medical Collections
Effective 2021, the Federal Housing Administration, FHA, has implemented new mortgage guidelines on medical versus non-medical collections. Medical derogatory accounts are treated differently than non-medical collection account in the mortgage underwriting guidelines for 2021.
Non-Medical Collection Accounts
Non-medical collection accounts are any unpaid, unsatisfied collection accounts that are not medical.
For example, the following are examples of non-medical:
- unsecured credit card collections
- automobile repossessions
- installment debt collections
- utility collection accounts
- any other creditors or collection agencies that do not represent a medical industry is classified as non-medical collections
Do Outstanding Collections Need To Get Paid To Qualify For A Mortgage?
Non-medical collection accounts with a credit balance do not have to be paid to get mortgage approval:
- However, effective 2021, if there is a balance on an unsatisfied non-medical collection account that is a total of $2,000 outstanding balance
- 5% of the balance of the unpaid collection account will be used as a monthly expense and be counted towards borrowers debt to income ratios
- Borrowers do not have to pay anything
- This will be a hypothetical debt
Do Unpaid Collection Accounts Need To Be Paid?
The collection account does not have to be paid nor does any payment needs to be made on a monthly basis. However, the 5% calculation will be used as a hypothetical debt:
- Borrowers with large unpaid collection accounts can have an issue with this rule
- However, for borrowers with large outstanding balances on collection accounts, mortgage guidelines will accept a written payment agreement with the collection agency with a monthly payment in lieu of the 5%
- For example, for borrowers with the outstanding balance on a collection account of $20,000, 5% of the unpaid $20,000 will be used towards debt to income calculations or $1,000
- A $1,000 monthly payment is equivalent to a $200,000 mortgage
- This will greatly impact borrowers debt to income ratios
However, setting up a written payment agreement with the collection agency where the agreement is to pay $100 per month versus the $1,000 per month, the $100 per month per payment agreement will be used towards debt to income calculations by underwriters.
Non-Medical Versus Medical Collections
Medical collections are treated more favorably and differently per 2021 mortgage lending guidelines than non-medical collections. Borrowers can have unpaid collections with credit balances with medical collections. Taking 5% of the outstanding collection balance does not apply to medical collections. With medical collections, no percentage of the unpaid collection balance will be taken into account in calculating debt to income ratios like is the case with non-medical collections. On the above example where you have a $20,000 unsatisfied unpaid collection account, if that balance is a medical collection, the underwriter will not take 5% of the unpaid balance in calculating debt to income ratios. No percentage of the unpaid collection balance will be used towards calculating debt to income ratios.
Disputing Derogatory Credit Items On Credit Report
Many consumers either hire a credit repair company and/or try to remove derogatory items by themselves by disputing derogatory credit items. 2021 mortgage lending guidelines on disputing derogatory credit items are now in full force. Borrowers cannot have an active pending credit item dispute on a non-medical collection account with a credit balance over $1,000. Credit disputes are not allowed on charged-off accounts, late payments, or other derogatory accounts with the exception of medical collection accounts. Borrowers with active credit disputes on the credit report, the mortgage process will come to an abrupt halt until they retract the disputed items. Credit disputes on non-medical collections with zero balances are exempt. Again, these are for non-medical collections, charge-offs, late payments, and any other derogatory items.
Credit Disputes During Mortgage Process
To proceed with the mortgage application process, borrowers need to either pay off the disputed items or retract the dispute with the three major credit reporting agencies and/or the disputed creditor and/or collection agency.
- Unfortunately, if borrowers retract dispute on the credit report, credit scores will most likely drop
- Anytime consumers retract a dispute, credit scores will drop
- Sometimes the credit scores can drop as much as 100 points depending on the situation
- Credit disputes with no credit balances are fine and do not need to be retracted
The above case does not apply to medical disputes. Borrowers can have disputes on medical collections with open collections and this rule does not apply.
Me and wife Katrina are trying to proceed with the mortgage process. I would like for you to email is or give us a call. Thank You very much
Thank you Mr. Young. You can email me at GLCProperties@aol.com and my phone number is 262-716-8151.
Kind Regards,
Gustan Cho NMLS ID 873293
What states do you lend in?
Our company is licensed in most of the 50 states.
State Licensing
We are licensed in the following states:
Licensed by the State of Alabama
State Banking Department
Bureau of Loans
Consumer Credit License # MC21031
P.O. Box 4600
Montgomery, AL 36103-4600
334-242-3452
http://www.banking.alabama.gov
Licensed by the Arizona Department of Financial Institutions
Mortgage Lender License No. 092713
2910 N. 44th Street, Suite 310
Phoenix, AZ 85018
Phone: 602-771-2800
Fax: 602-381-1225
http://www.azdfi.gov
Licensed by the Arkansas Securities Department
Combination Mortgage Banker-Broker-Servicers License No. 23564
Heritage West Building, Suite 300
201 East Markham Street
Little Rock, AR 72201
Phone: 501-324-9260
Fax: 501-324-9268
http://www.securities.arkansas.gov
Licensed by State of California – Department of Corporations
Under the California Residential Mortgage Act
Lender License File # 413 0715
Department of Corporations
1515 K Street, Suite 200
Sacramento, CA 95814-4052
916-445-7205
Toll free: 1-866-275-2677
http://www.corp.ca.gov
Licensed by the Colorado Secretary of State – Business Division
Foreign Corporation ID # 20031357330
Division of Banking
Department of Regulatory Agencies
1560 Broadway, Suite 975
Denver, CO 80202
303-894-7575
Fax: 303-894-7570
http://www.dora.state.co.us/banking
Licensed by Connecticut Department of Banking – Banking Commissioner
First Mortgage Correspondent Lender/Broker License # 14598
Connecticut Department of Banking
260 Constitution Plaza
Hartford, CT 06103
860-240-8299
Toll free: 1-800-831-7225
http://www.state.ct.us/dob
Licensed by the Delaware Office of the State Bank Commissioner
Lender License # 8095
Office of the State Bank Commissioner
555 East Lockerman St., Suite 210
Dover, DE 19901
302-739-4235
302-739-4235
Fax: 302-739-2356 / 302-739-3609
http://www.state.de.us/bank
Licensed by the District of Columbia Department of Insurance, Securities, and Banking
Mortgage Dual Authority License # MLB 5526
Department of Insurance, Securities and Banking
1400 L St., NW
Washington, DC 20005
202-727-1563
Fax: 202-727-1290
http://www.dbfi.dc.gov
Licensed by the Florida Office of Financial Regulation
Correspondent Mortgage Lender License # CL0700027
Department of Financial Services
200 East Gaines St.
Tallahassee, FL 32399-0300
850-413-3100
Toll free: 1-800-342-2762 (FL)
Fax: 850-488-2349
http://www.fldfs.com
Licensed by the Georgia Department of Banking and Finance
Georgia Lender License 20361
2990 Brandywine Road, Suite 200
Atlanta, GA 30341
http://www.dbf.georgia.gov
Licensed by the Illinois Department of Financial and Professional Regulation
Division of Banking
Illinois Residential Mortgage Licensee # MB.6759498
320 W. Washington Street
Springfield, IL 62786
(217)785-0820
Licensed by the State of Idaho
Mortgage Broker/Lender License #MBL-8420
Department of Finance
Consumer Finance Bureau
800 Park Blvd, Suite 200
Boise, ID 83712
P: 208-332-8002
http://www.finance.idaho.gov
Licensed by The Iowa Division of Banking
Mortgage Banker License No. 2014-0026
200 East Grand Avenue, Suite 300
Des Moines, IA 50309
Phone: 515-281-4014
Fax: 515-281-4862
http://www.idob.state.ia.us
Licensed by the Kansas Office of State Bank Commissioner
Mortgage Company License #MC.0001521
Office of the State Bank Commissioner
700 Jackson St., Suite 300
Topeka, KS 66603-3714
785-296-2266
Fax: 785-296-0168
http://www.osbckansas.org
Licensed by the Kentucky Department of Financial Institutions
Mortgage Company License No. 292052
1025 Capital Center Drive, Suite 200
Frankfort, KY 40601
P: 502-573-3390
F: 502-573 -8787
http://www.kfi.ky.gov
Licensed by Maine Department of Professional & Financial Regulation – Bureau of Consumer Credit Protection
Supervised Lender, Branch License # SLB7888
Bureau of Financial Instituions
36 State House Station
Augusta, ME 04333-0036
207-624-8570
Toll free: 1-800-965-5235
TTY: 207-624-8563
Fax: 207-624-8590
http://www.mainebankingreg.org
Licensed by the State of Maryland
Mortgage Lender License # 9063
Commissioner of Financial Regulation
500 North Calvert St., Suite 402
Baltimore, MD 21202
410-230-6100
http://www.dllr.state.md.us/finance
Licensed by the Massachusetts Division of Banks & Loan Agencies – Commissioner of Banks
Mortgage Company, License # MC1019
Division of Banks
One South Station
Boston, MA 02110
617-956-1500
Toll free: 1-800-495-2265 (MA)
TTY: 617-956-1577
Fax: 617-956-1599
http://www.mass.gov/dob
Licensed by Michigan Department of Insurance and Financial Services
Michigan 1st Mortgage
Broker/Lender/Servicer Registrant
License No. FR0011647
Consumer Finance Section
110 W. Michigan Ave., Suite 400
Lansing, MI 48933
http://www.michigan.gov/difs
Licensed by Minnesota Dept. of Commerce – Commissioner of Commerce
Residential Mortgage Originator License # 20453963
Residential Mortgage Originator License # 20453478
Residential Mortgage Originator License # 20453982
Financial Examinations Division
Department of Commerce
85 Seventh Place East, Suite 500
St. Paul, MN 55101
651-296-2715
Fax: 651-296-8591
http://www.commerce.state.mn.us
Licensed by the Missouri Division of Finance
Mortgage Broker License No. 14-2155
Truman State Office Building
Room 630
Jefferson City, MO 65102
Phone: 573-751-3242
Fax: 573-751-9192
http://finance.mo.gov/
Licensed by the Montana Division of Banking & Financial Institutions
PO Box 200546
Helena, MT 59620
P: 406-841-2920
F: 406-841-2930
http://www.banking.mt.gov
Licensed by the Nebraska Department of Banking & Finance
Mortgage Banker License #NE1019
1526 K Street, Suite 300
Lincoln, NE 68508
P: 402-471-2171
http://www.ndbf.ne.gov
Licensed by the Nevada Department of Business and Industry
Mortgage Lending Division
Nevada Mortgage Broker License #4066
7720 Bermuda Rd. Suite A
Las Vegas, NV 89119
P: 702-486-0780
F: 702-486-0785
http://www.mld.nv.gov
Licensed by New Jersey Department of Banking & Insurance
Licensed Lender (Corporation) License #9917842
Department of Banking and Insurance
20 West State St.
PO Box 325
Trenton, NJ 08625
609-292-3420 (Banking)
Fax: 609-292-5571
http://www.njdobi.org/
Licensed by New Mexico Financial Institutions Division
Mortgage Loan Company License
Financial Institutions Division
Regulation and Licensing Department
2550 Cerrillos Rd., 3rd Floor
Santa Fe, NM 87501
505-476-4519
Fax: 505-476-4670
http://www.rld.state.nm.us/financialinstitutions/
Licensed by New York Department of Financial Services.
Licensed Mortgage Banker License # LMBC 104352
Banking Department
Consumer Help Unit
One State Street
New York, NY 10004-1417
212-709-5470
Toll free: 1-877-BANK-NYS (NY – Consumer Services Hotline)
Fax: 212-709-1673
http://www.banking.state.ny.us
Licensed by North Carolina Commissioner of Banks Office
License No. L-157658
Mortgage Division
316 W. Edenton St.
Raleigh, NC 27603
http://www.nccob.gov
Licensed by the Ohio Division of Financial Institutions
Mortgage Loan Act Certificate of Registration No. SM.501879.000
Ohio Mortgage Broker Act Certificate of Registration No. MB.804150.000
77 South High Street, 21st Floor
Columbus, OH 43215
Phome: 614-728-8400
Fax: 614-728-0380
http://www.com.ohio.gov/fiin/
Licensed by the Oklahoma Department of Consumer Credit Licensing
Mortgage Lender License No. ML010233
3613 NW 56th Street, Suite 240
Oklahoma City, OK 73112
Phone: 405-521-3653
Fax: 405-521-6740
http://www.ok.gov/okdocc
Licensed by Oregon Dept. of Consumer & Business Services
Mortgage Lender License # ML-3605
Department of Consumer & Business Services
Division of Finance and Corporate Securities
350 Winter St., NE, Room 410
Salem, OR 97310
503-378-4140
Toll free: 1-866-814-9710 (Fraud/Complaint Investigation)
TTY: 503-378-4100
Fax: 503-947-7862
dfcs.oregon.gov
Licensed by Pennsylvania Department of Banking
First Mortgage Banker License # 16603.001
Department of Banking
17 N. Second Street, Suite 1300
Harrisburg, PA 17101-2290
717-787-6991
717-214-8343
Toll free: 1-800-PA-BANKS (PA)
TTY: 1-800-679-5070 (Toll free)
Fax: 717-787-8773
http://www.banking.state.pa.us
Licensed by the State of Rhode Island
Lender License # 20092616LL
Division of Banking
1511 Pontiac Ave.
Cranston, RI 02920
401-462-9503
http://www.dbr.state.ri.us
Licensed by the State of South Carolina
Office of the Commissioner of Banking
State Board of Financial Institutions
1205 Pendleton Street
Suite 305
Columbia, SC 29201
803-734-2001
http://www.banking.sc.gov
Licensed by The Tennessee Department of Financial Institutions
Mortgage Lender License No. 115996
400 Deaderick Street
6th Floor
Nashville, TN 37243
P: 615-253-6714
http://www.tennessee.gov/tdfi/
Licensed by Vermont Department of Financial Regulation
Licensed Lender License # 5735
Mortgage Broker License # 0683 MB
Banking Division
89 Main St., 2nd Floor
Montpelier, VT 05620-3101
http://www.dfr.vermont.gov
Licensed by Virginia State Corporation Commission – Bureau of Financial Institutions
Mortgage Lender/Broker License # MC3692
Bureau of Financial Institutions
1300 East Main St., Suite 800
Richmond, VA 23219-3630
804-371-9657
Toll free: 1-800-552-7945 (VA)
TTY: 804-371-9206
Fax: 804-371-9416
http://www.scc.virginia.gov
Licensed by Washington Dept. of Financial Institutions
Consumer Loan License # 520-CL-27827
Department of Financial Institutions
PO Box 41200
Olympia, WA 98504-1200
360-902-8700
Toll free: 1-877-RING-DFI
Fax: 360-586-5068
http://www.dfi.wa.gov
Licensed by the Wisconsin Department of Financial Institutions
Mortgage Banker License #26871
201 W. Washington Ave
Madison, WI 53703
P: 608-261-9555
http://www.wdfi.org
Licensed by Texas Department of Savings & Mortgage Lending
Mortgage Banker Registration # 77120
Department of Savings & Mortgage Lending
2601 North Lamar, Ste. 201
Austin, TX 78705
512-475-1350
Toll free: 1-877-276-5550
Fax: 512-475-1360
http://www.sml.texas.gov
Texas Disclosure
PURSUANT TO THE REQUIREMENTS OF SECTION 157.007 OF THE MORTGAGE BANKER REGISTRATION AND RESIDENTIAL MORTGAGE LOAN ORIGINATOR ACT, CHAPTER 157, TEXAS FINANCE CODE, YOU ARE HEREBY NOTIFIED OF THE FOLLOWING:
CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A MORTGAGE BANKER OR A LICENSED MORTGAGE BANKER RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE, SIGN AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE DOWNLOADED AND PRINTED FROM THE DEPARTMENT’S WEBSITE AT WWW://SML.TEXAS.GOV. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.
THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED MORTGAGE BANKER RESIDENTIAL MORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEB SITE AT WWW://SML.TEXAS.GOV.
The 3 CRA’s ALWAYS side with the creditors. Even for debts that are not yours, you’ve never seen before, in another state.
What about a medical debt that just one day APPEARS on your CR? They never called, emailed, or sent you a bill? No contact, it’s just sitting right on your report. You argue this, the CRA’s end up STILL siding with the unscrupulous creditors. How are you supposed to fight that?
It happened to me, an actually non medical bill, $1,000 for cable out of TX. I’m in MI. They kept verifying it! Totally impossible. Now SO has a medical collections for a dr. who was paid in full, 7 years ago, so past the original due date. Dr. put it into collections a few months ago, out of the clear blue sky. He was never contacted, nothing was sent, we found it running his CR for a new mortgage. So we have to admit if it’s our bill or not in only 30 days, why is the same NOT true for these creditors? They can just ADD items on your CR whenever they want? And the big 3 ALWAYS sides with them.