Announcement 21-0026: FHA Student Loan Payment Calculation

Overview

The U.S. Department of Housing and Urban Development (HUD) has updated the payment calculation of monthly obligation for student loans. The change is effective for all case numbers assigned on or after August 16, 2021; however, Carrington Mortgage Services, LLC (CMS) has elected to begin using the new guidance effective immediately. The change applies to all FHA loan programs except non-credit qualifying streamline refinances, which do not require evaluation of the Borrower’s debts.

Lenders 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 Lender 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 Lender may exclude the payment from the Borrower’s 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 payment status, the Lender 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.

Contacts

Please contact CorrespondentRM@carringtonms.com with any questions.

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