WBK Industry News - Federal Regulatory Developments

FHA Waives Requirement to Report Credit Rejections in FHA Connect

FHA adopted a waiver of its requirement that lenders complete the Mortgage Credit Reject screen in FHA Connect when they reject or deny an FHA loan for a borrower.

Previously, mortgagees were required to report certain information in FHA Connect when they rejected or denied a borrower for an FHA loan.  In turn, if the same borrower sought another FHA loan within the next six months, the loan required additional approval from the FHA Homeownership Center (HOC) which covered the applicable region.  In practice, other lenders often would not offer FHA loans to borrowers who were flagged with one of these reports even if they might otherwise qualify, and the process of obtaining endorsement by the HOC often delayed the loan approval process.

In support of the waiver, FHA noted that: 1) loan denials can often be for reasons unrelated to a borrower’s eligibility for an FHA loan; 2) the new lender is still able to see that the borrower’s recently applied for a mortgage loan in the credit inquiry section of the borrower’s credit report; and 3) FHA does not use this mortgage rejection data for any other purpose, such as risk analytics or quality assurance selection criteria.

The waiver is effective for all cases pending endorsement on or after September 11, 2023, and for any cases already pending endorsement, any associated Mortgage Credit Reject warning flags will be removed.