2022-11

Subject: FHA ML22-09: Income Calculation for Borrowers Impacted by COVID-19

Date: July 20, 2022

FHA published Mortgagee Letter 2022-09, which provides additional underwriting consideration on the calculation or qualifying income for borrowers impacted by the COVID-19 pandemic.

• This ML provides guidance for declining income and/or a gap in employment due to the COVID-19 pandemic
• These updates are effective IMMEDIATELY and may be used for pipeline loans
• The change impacts loans both underwritten by TOTAL scorecard and loans manually underwritten

SUMMARY OF CHANGE

• When a borrower can demonstrate that their income was adversely impacted by the COVID-19 pandemic, there are now different qualification guidelines that can be considered.
  • The file must contain evidence of how/why the income is considered impacted by the COVID-19 pandemic. The exceptions are specific to borrowers impacted by the COVID-19-related economic event and are NOT automatically applied to all loan files/income types.    
• Regardless of the qualification method, the income used to qualify must be now considered stable and likely to continue.
• The income categories impacted are listed below. Important note: not all income types are included in the update. For example, seasonal income cannot use any of the exception guidelines due to the COVID-19 pandemic.
  • Primary (varying hours) income
  • Part-time income
  • Overtime, Bonus & Tip Income
  • Borrowers employed by family members
  • Commission income
  • Self-employed borrowers

REMN has requested additional clarification from FHA, as some changes are not clear. Please review full details in FHA’s Mortgagee Letter 2022-09 for more details.

Highlights of Changes:

1. HOURLY WAGE EARNER (Primary & Part Time) – HOURS VARY – QUALIFYING INCOME IS THE LESSER OF
   • The average earned before the COVID-related event – OR
   • The average earned since the COVID-related event
2. OVERTIME, BONUS & TIP INCOME – QUALIFYING INCOME IS THE LESSER OF
   • The average earned before the COVID-related event – OR
   • The average earned since the COVID-related event
3. EMPLOYED BY FAMILY MEMBER –QUALIFYING INCOME IS:
   • Hours do not vary:  Currently hourly rate
   • Hours do vary — Lesser of:
     • The average earned before the COVID-related event – OR
     • The average earned since the COVID-related event
4. COMMISSION INCOME QUALIFYING INCOME IS THE LESSER OF
   • The average earned before the COVID-related event – OR
   • The average earned since the COVID-related event
5. SELF-EMPLOYED BORROWERS – GENERAL REQUIREMENTS
   • The borrower must have an aggregated self-employment history before and after the COVID-related event totaling 2 years.    If less than 2 years, between 1 -2 years may be considered with prior experience.
   • If the borrower has regained an income level of less than 80% of their income before the COVID-related event, the file must be manually downgraded.
6. SELF-EMPLOYED BORROWERS – DOCUMENTATION REQUIREMENTS
   • A letter of explanation – AND
   • The borrower’s business returns for the most recent 2 years – AND
   • Either of the following:
     • An audited YTD P&L, supporting revenue, expenses, and net income up to and including the most recent month preceding the case assignment date – OR
     • An unaudited P&L, signed by the borrower, supporting revenue, expenses, and net income up to and including the most recent month preceding the case assignment date – PLUS – the 3 most recent business bank statements, no older than the latest 2 months represented on the YTD P&L.   Monthly deposits on the business bank statements must support the earnings on the unaudited YTD P&L
7. SELF-EMPLOYED BORROWERS – QUALIFYING INCOME IS THE LESSER OF
   • The average income earned over the previous 2 years prior to the COVID-related event – OR
   • The average earned over the previous 6 months after the COVID-related event
8. GAPS IN EMPLOYMENT – NON-SELF-EMPLOYED INCOME – GENERAL REQUIREMENTS
   • The borrower has been employed in the current job or same line of work for at least 1 month at the time of the case number assignment – OR
   • The borrower has been employed in a different job or line of work for at least 6 months at the time of the case assignment, and the borrower has an aggregated two-year work history prior to the case number assignment excluding gaps in employment.
   • A written VOE identifying the time period of temporary loss of employment, income, and/or hours is required.

**Please contact your Account Executive with any questions**