FHA Automatic Rejection

  A borrower must be rejected for FHA financing if any of the following conditions:

A.       HUD Limited Denial of Participation (LDP) and the U.S. General Services Administration’s “List of Parties Excluded from Federal Procurement and Non-Procurement Programs” (GSA List)  If a party to the transaction is suspended, debarred, or otherwise excluded from participation the party is not eligible to participate in FHA-insured mortgage transactions.  The mortgage lender must examine HUD’s LDP list and the government-wide General Services Administration’s (GSA) “List of Parties Excluded from Federal Procurement or Nonprocurement Programs” and document this review on the HUD 92900-WS/92900-PUR.  If the name of the mortgage applicant, seller, listing or selling real estate agents, or loan officer appears on either list, the application is not eligible for FHA mortgage insurance. 
FHA lenders must check HUD’s LDP list by going to www.hud.gov and the Federal government’s list of excluded parties by going to http://epls.arnet.gov.  (An exception shall be made for a seller on the GSA list when the property being sold is the seller’s principal residence.)

B.       Delinquent Federal Debts.  If the FHA mortgage applicant, as revealed by public records, credit information, or HUD’s Credit Alert Interactive Voice Response System (CAIVRS), is presently delinquent on any Federal debt (e.g., VA-guaranteed mortgage, Title I loan, Federal student loan, Small Business Administration loan, delinquent Federal taxes) or has a lien, including taxes, placed against his or her property for a debt owed to the U.S., the FHA mortgage applicant is not eligible until the delinquent account is brought current, paid, otherwise satisfied, or a satisfactory repayment plan is made between the borrower and the Federal agency owed and is verified in writing.  Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.  If any regular payments are to be made, they must be included in the debt to income ratios. 

Since the IRS routinely takes a second lien position without the necessity of independent documentation, eligibility for FHA mortgage insurance will not be jeopardized by outstanding IRS tax liens remaining on the property unless the lender has information that the IRS has demanded a first-lien position.

Although eligibility for an FHA-insured mortgage may be established by performing the actions described above, the overall analysis of the creditworthiness must include consideration of a borrower's previous failure to make payments to the Federal agency in the agreed-to manner and must document its analysis of how the previous failure does not represent a risk of mortgage default.

C.       CAIVRS.  HUD’s CAIVRS is a Federal government-wide repository of information on those individuals with delinquent or defaulted Federal debt and on those for whom a payment of an insurance claim has occurred.  Lenders must screen all borrowers, including nonprofit agencies acting as a borrower, using CAIVRS (except on streamline refinances).  If CAIVRS indicates the borrower is presently delinquent or has had a claim paid within the previous three years on a loan made or insured by HUD on his or her behalf, the borrower is not eligible except as described below.  Lenders access CAIVRS either through the FHA Connection or functional equivalent or by calling 301-344-4000 on a touch-tone telephone.  Lenders must write the CAIVRS authorization code for each borrower on the HUD-92900-WS/92900-PUR.  Exceptions to this rule may be granted under the following situations:

1.       Assumptions.  If the borrower sold the property, with or without a release of liability, to an individual who subsequently defaulted, the borrower is eligible, provided he or she can prove the loan was not in default at the time of assumption.

2.       Divorce.  A borrower may be eligible if the divorce decree or legal separation agreement awarded the property and responsibility for payment to the former spouse.  However, if a claim was paid on a mortgage in default prior to the divorce, the borrower is not eligible.

3.       Bankruptcy.  When the property was included in a bankruptcy that was caused by circumstances beyond the borrower's control (such as the death of the principal wage earner or serious long-term uninsured illness), the borrower may be eligible if the borrower meets the requirements in Paragraph 2-3 E.

While FHA may delete erroneous information regarding a borrower falsely indicated as having defaulted on a FHA mortgage, such as incorrect social security number reporting, it will not remove correct CAIVRS information even if the borrower is judged eligible under the conditions described above.

Lenders may not rely upon a clear CAIVRS approval when in possession of independent evidence of delinquent federal obligations and must document the resolution of any conflicting information.  If the lender has reason to believe the CAIVRS message is erroneous or needs to establish the date of claim payment, the lender must contact the appropriate HOC for instructions or documentation to support the borrower's eligibility.  The appropriate HOC can provide information when the three-year waiting period will elapse or if the social security number in CAIVRS is erroneous.  The HOC will also provide instructions to lenders regarding processing requirements for other HUD-related defaults and claims (e.g., Title I loans).

We cannot alter or delete CAIVRS information reported from other Federal agencies, such as the Department of Education, Veterans Affairs, etc.  The borrower and/or the lender must contact those agencies to correct or remove erroneous or outdated information.  We do not require a "clear" CAIVRS authorization number as a condition for mortgage endorsement, but the lender must document and justify its approval based on the exceptions described above.

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