Yes, the Mortgagee must include deferred obligations in the Borrower’s liabilities.
Deferred Obligations (excluding Student Loans)
Deferred obligations (excluding Student Loans) refer to liabilities that have been incurred but where payment is deferred or has not yet commenced, including accounts in forbearance.
The Mortgagee must obtain written documentation of the deferral of the liability from the creditor and evidence of the outstanding balance and terms of the deferred liability. The Mortgagee must obtain evidence of the actual monthly payment obligation, if available.
The Mortgagee must use the actual monthly payment to be paid on a deferred liability, whenever available. If the actual monthly payment is not available for installment debt, the Mortgagee must utilize the terms of the debt or five percent of the outstanding balance to establish the monthly payment.
Student Loans
The Mortgagee must include all Student Loans in the Borrower’s liabilities, regardless of the payment type or status of payments.
Required Documentation
If the payment used for the monthly obligation is less than the monthly payment reported on the Borrower’s credit report, the Mortgagee must obtain written documentation of the actual monthly payment, the payment status, and evidence of the outstanding balance and terms from the creditor or student loan servicer.
The Mortgagee may exclude the payment from the monthly debt calculation where written documentation from the student loan program, creditor, or student loan servicer indicates that the loan balance has been forgiven, canceled, discharged, or otherwise paid in full.
Calculation of Monthly Obligation
For outstanding Student Loans, regardless of the payment status, the Mortgagee must use:
- the payment amount reported on the credit report or the actual documented payment, when the payment amount is above zero; or
- 0.5 percent of the outstanding loan balance, when the monthly payment reported on the Borrower’s credit report is zero.
This guidance is effective for all case numbers assigned on or after August 16, 2021. However, Mortgagees may begin using the policies announced in this ML immediately.
For additional information see
- Handbook 4000.1 II.A.4.b.iv(G) and (H) and II.A.5.a.iv(F) and (G) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh
- Mortgagee Letter 2021-13 https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee
All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.