MBA, Trade Groups Ask FHA To Revise Borrowers’ Student Loan Debt Treatment

The Mortgage Bankers Association and 18 other groups asked the Federal Housing Administration to revise its treatment of borrowers’ student loan debt to better align with the standards at the GSEs, VA and USDA.

In a letter to HUD Assistant Secretary for Housing and Federal Housing Commissioner Dana Wade, the coalition, which included MBA, the American Bankers Association, the Center for Responsible Lending and the National Community Reinvestment Coalition, highlighted an important issue regarding FHA’s guidelines for calculating student loan debt for borrowers actively participating in income-based, graduated, deferred, adjustable and forbearance repayment plans.

“We are concerned that current FHA requirements may be disqualifying otherwise creditworthy borrowers by using a formulaic calculation in lieu of the actual monthly obligation that appears on the credit report,” the letter said. “The use of this calculation often results in an artificially inflated debt-to-income (DTI) ratio that could cause many borrowers to become ineligible for FHA financing.”

The organizations recommended HUD amend FHA’s policy regarding the consideration of student loan debt obligations for borrowers who participate in covered plans consisting of a payment that does not fully amortize the debt.