Housing Agencies Moving Quickly to Offer "Flexibilities" After Coronavirus

Fannie Mae has issued a series of three lender letters dealing with changes in appraisals, originations, and servicing protocols in response to the COVID-19 national emergency. Fannie Mae indicates that similar letters will be forthcoming from Freddie Mac under guidance from the Federal Housing Finance Agency (FHFA).

The letter regarding appraisals, (LL-2020-04) allows the use of exterior only appraisals and Desktop appraisals where complete interior and exterior appraisals cannot be obtained due to virus fears. If a traditional appraisal is not obtained and there is insufficient information about the property for an appraiser to be able to complete an appraisal assignment with a desktop or exterior-only inspection appraisal, the loan will not be eligible for delivery to Fannie Mae.

Where loans are required to carry mortgage insurance (loan-to-value ratios greater than 80 percent), lenders must consult with their mortgage insurers to confirm coverage if using these temporary flexibilities.

The appraisal letter also lays out requirements for the forms that can be used in conveying both desktop and exterior only appraisals and the exhibits which must be included. It also lays out modified language for revisions to the scope of work, statement of assumptions and limited conditions, and appraisers certifications to be used with exterior-only and desktop appraisals 

The Lender Letter (LL-2020-03) addressing loan originations provides information about verbal verification of employment and income continuity. It also extended the deadline for lenders' annual financial statements and Form 582 to April 30, 2020 and restates the necessity of lenders to have and follow their own business continuity plans.

Fannie Mae says it is hearing that some lenders are having difficulty in obtaining verbal verification of employment (VOE) because of disruptions at the borrower's place of employment. Where this is the case, the following flexibilities will be allowed.

The Selling Guide permits the lender to obtain a written VOE confirming the borrower's current employment status within the same timeframe as the verbal VOE requirements. An email directly from the employer's work email address that identifies the name and title of the verifier and the borrower's name and current employment status may be used in lieu of a verbal VOE. Although the lender is strongly encouraged to obtain the verbal VOE prior to the loan closing, it can be obtained up to the time of loan delivery.

The lender may also obtain a year-to-date paystub or a bank statement from the pay period that immediately precedes the note date or a bank statement showing the payroll deposit.

With the current uncertainty associated with the pandemic and its impact on employment and income, lenders are advised to practice additional due diligence to ensure the most recent information on income is obtained strongly encouraged to help ensure any disruption to borrowers' employment (or self-employment) and/or income is not expected to negatively impact their ability to repay the loan. 

As an example of additional due diligence for a self-employed borrower, lenders are encouraged to attempt to verify that the borrower's business is operational closer to the note date rather than rely on the current Guide requirements (e.g., within 15 days instead of 120 days).

The Lender Letter regarding servicing (LL-2020-02) sets forth some temporary policies to enable servicers to better assist borrowers impacted by COVID-19.

Where borrowers have experienced unemployment, reduction in work hours, or illness impacting the borrower/co-borrower or a dependent which has reduced their ability to make their monthly mortgage payment, the servicer should evaluate the borrower for a forbearance plan in accordance with the Servicing Guide. Under the temporary rules, the property securing the mortgage loan may be a principal residence, a second home, or an investment property. The servicer is not required to obtain documentation of the borrower's hardship.

A servicer must begin an attempt to contact a borrower who has received a forbearance plan under this emergency at least 30 days prior to the expiration of that plan and must continue outreach attempts until either contact is achieved or the plan expires. Servicers must analyze each case as outlined in the Lender Letter to determine the most appropriate loan modification.

Servicers must also suspend reporting the status of a mortgage loan to credit bureaus while a forbearance plan is active or while the borrower is paying as agreed on a repayment or Trial Period Plan.

Servicer must suspend all foreclosure sales for the next 60 days except where a property has been determined to be vacant or abandoned, and servicers are encouraged to refer Fannie Mae borrowers to its Disaster Response Network. That number is 1-877-542-9723.

All temporary measures are effective immediately for all loans in process and, in the case of appraisals and originations, will remain in place for loans with application dates on or before May 17, 2020. Servicer flexibilities will be effective until further notice.