FHA Total Scorecard: FHA LoansGustan Cho Associates
FHA has developed a credit assessment engine known as the FHA TOTAL Mortgage Scorecard to analyze the credit worthiness of borrowers and to predict the likelihood of default for FHA Loans. The FHA TOTAL Scorecard is used with FHA loans that are submitted through an automated underwriting system. The FHA Total Scorecard helps mortgage lenders manage workflow while analyzing and expediting the endorsement process. After evaluating the mortgage loan borrower’s mortgage credit risk profile, FHA TOTAL Scorecard makes a recommendation of “Accept” or “Refer.” An “Accept” classification means that the FHA will insure the borrower’s loan with reduced documentation, while “Refer” means that the lender will be required to manually underwrite the loan. Not all mortgage lenders do manual underwrites on referred findings. Compensating factors are required for manually underwritten mortgage loans such as higher down payment, reserves, and verification of rent to name a few.
FHA Total Scorecard Basics
One very important matter to understand is a FHA mortgage lender cannot decline a loan solely based on a FHA TOTAL scorecard risk assessment. Human intervention still needs to take place. Some of the things that TOTAL does not do include:
- determine LTV or DTI (AUS systems calculate this)
- deny an application
- review the property to see if it is eligible for financing
- assess down payment requirements
FHA does require that all transactions be scored through TOTAL, with the exception of streamline refinances and borrowers without a credit score.
Each AUS finding using TOTAL provides the lender with documented results. The lender receives a feedback document from TOTAL, and the lender can then make its decision. The last TOTAL score run must be included in the case binder that is submitted to HUD by the lender, regardless of what the evaluation states. This means that the evaluation may differ from the decision.
The following diagram shows how the FHA TOTAL Mortgage Scorecard works in Loan Prospector.Gustan Cho Associates