In response to COVID-19 developments, Fannie Mae and Freddie Mac have issued guidance regarding verifications of employment (VOEs), income continuity, appraisals, title policies, and other matters. The Fannie Mae guidance is set forth in Lender Letter 2020-03 and Lender Letter 2020-04, and the Freddie Mac guidance is set forth in Bulletin 2020-5.
VOEs. Based on the difficulty of obtaining verbal VOEs, Fannie Mae and Freddie Mac address the use of written methods that will be permitted, specifically an email from the employer, year-to-date paystubs or bank account statements (or other permitted documentation) that reflect payroll deposits.
Income Continuity. Fannie Mae provides the following guidance: “Given the current economic climate associated with COVID-19 and its impact on employment and income, we recommend that lenders practice additional due diligence to ensure the most recent information is obtained. Lenders are strongly encouraged to help ensure any disruption to borrowers’ employment (or self-employment) and/or income due to COVID-19 is not expected to negatively impact their ability to repay the loan. During these uncertain times, it is our goal to partner with you to help ensure sustainable homeownership for the borrower.”
Freddie Mac provides the following guidance: “Given the current COVID-19 situation and its impact on the economy including Borrower employment and income, Freddie Mac recommends that Sellers practice additional due diligence to ensure that accurate Borrower information is obtained and that the Borrower’s ability to repay the Mortgage is not negatively impacted. During these uncertain times, it is our goal to partner with our Sellers to help them ensure sustainable homeownership for the Borrower.”
Both Fannie Mae and Freddie Mac note that an example of additional due diligence for a self-employed borrower would be attempting 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).
Appraisals. Fannie Mae and Freddie Mac address the loans, and related circumstances, for which they will accept an exterior appraisal and/or desktop appraisal in lieu of a traditional appraisal. They also provide related guidance regarding the completion of appraisal report forms. Fannie Mae and Freddie Mac also encourage the acceptance of appraisal waiver offers.
Title Insurance. With regard to the challenges in meeting title requirements that are presented by recording offices being closed, both Fannie Mae and Freddie Mac advise that they are working to address the challenges. In the meantime, both advise that they accept lender’s policies of title insurance written on the 2016 ALTA loan title insurance form or an equivalent form, as long as it includes Covered Risk 14, which provides for gap coverage, and there is no exclusion for this coverage in Schedule B of the policy.
Business Continuity Plans. Fannie Mae and Freddie Mac remind sellers and services of their requirements for business continuity plans, and note that they have communicated with their document custodians and confirmed that the custodians’ plans are in place.
Financial Statements. For companies with a March 31, 2020, deadline (based on a December 31 year-end) to file financial statements and related information with Fannie Mae and Freddie Mac, the deadline is extended until April 30, 2020.
VOEs. Based on the difficulty of obtaining verbal VOEs, Fannie Mae and Freddie Mac address the use of written methods that will be permitted, specifically an email from the employer, year-to-date paystubs or bank account statements (or other permitted documentation) that reflect payroll deposits.
Income Continuity. Fannie Mae provides the following guidance: “Given the current economic climate associated with COVID-19 and its impact on employment and income, we recommend that lenders practice additional due diligence to ensure the most recent information is obtained. Lenders are strongly encouraged to help ensure any disruption to borrowers’ employment (or self-employment) and/or income due to COVID-19 is not expected to negatively impact their ability to repay the loan. During these uncertain times, it is our goal to partner with you to help ensure sustainable homeownership for the borrower.”
Freddie Mac provides the following guidance: “Given the current COVID-19 situation and its impact on the economy including Borrower employment and income, Freddie Mac recommends that Sellers practice additional due diligence to ensure that accurate Borrower information is obtained and that the Borrower’s ability to repay the Mortgage is not negatively impacted. During these uncertain times, it is our goal to partner with our Sellers to help them ensure sustainable homeownership for the Borrower.”
Both Fannie Mae and Freddie Mac note that an example of additional due diligence for a self-employed borrower would be attempting 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).
Appraisals. Fannie Mae and Freddie Mac address the loans, and related circumstances, for which they will accept an exterior appraisal and/or desktop appraisal in lieu of a traditional appraisal. They also provide related guidance regarding the completion of appraisal report forms. Fannie Mae and Freddie Mac also encourage the acceptance of appraisal waiver offers.
Title Insurance. With regard to the challenges in meeting title requirements that are presented by recording offices being closed, both Fannie Mae and Freddie Mac advise that they are working to address the challenges. In the meantime, both advise that they accept lender’s policies of title insurance written on the 2016 ALTA loan title insurance form or an equivalent form, as long as it includes Covered Risk 14, which provides for gap coverage, and there is no exclusion for this coverage in Schedule B of the policy.
Business Continuity Plans. Fannie Mae and Freddie Mac remind sellers and services of their requirements for business continuity plans, and note that they have communicated with their document custodians and confirmed that the custodians’ plans are in place.
Financial Statements. For companies with a March 31, 2020, deadline (based on a December 31 year-end) to file financial statements and related information with Fannie Mae and Freddie Mac, the deadline is extended until April 30, 2020.
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