How Are Medical Collections During Mortgage Process Treated

5

How Are Medical Collections During Mortgage Process Treated

This BLOG On How Are Medical Collections During Mortgage Process Treated Was UPDATED On March 15th, 2018

Home buyers can qualify for 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 who either own the debt or 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 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, mortgage lenders classify collection accounts into two categories
    • Non-medical collections
    • Medical collections

FHA Guidelines On Non-Medical Versus Medical Collections

  • Effective 2018, the Federal Housing Administration, FHA, has implemented new mortgage guidelines on non-medical collections and on medical collections
  • Medical collections are treated differently than non-medical collection account in the mortgage underwriting guidelines for 2018

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
  • Non-medical collection accounts with a credit balance does not have to be paid to get mortgage approval
  • However, effective 2018, if there is a balance on a 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

Does 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 to this rule
  • However, 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, borrowers with 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

Medical Collections Versus Non-Medical Collections

Medical collections are treated more favorably and differently per 2018 mortgage lending guidelines than non-medical collections:

  • Borrowers can have unpaid collections with credit balances with medical collections
  • Taking 5% of outstanding collection balance does not apply with medical collections
  • With medical collections, no percentage of the unpaid collection balance will be taken into account in calculating debt to income ratios like it 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.

  • 2018 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 dispute on credit report, 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, charged 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 dispute with the three major credit reporting agencies and/or the disputed creditor and/or collection agency.

  • Unfortunately, if borrowers retract dispute on 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 situation
  • Credit disputes with no credit balances are fine and do not need to be retracted

The above case does not apply for medical disputes.  Borrowers can have disputes on medical collections with open collections and this rule does not apply.

Gustan Cho NMLS ID 873293

www.gustancho.com

  1. Hannibal Young says

    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

    1. Gustan Cho says

      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

  2. Lp says

    What states do you lend in?

    1. Gustan Cho says

      Our company is licensed in most of the 50 states.

    2. Gustan Cho says

      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.

Leave A Reply

Your email address will not be published.

CALL NOW