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New Origination and Servicing Agency Updates to COVID-19 as of March 31, 2021

The StoneHill Group continually monitors the mortgage industry for changes that impact our clients. Here are the most recent Stonehill and Agency updates.

Stonehill Updates Related to COVID-19

In 2020 the Stonehill Group (TSG) temporarily started placing a comment on loans where required post-closing tax transcripts were missing, due to the IRS delays around processing the tax transcript orders. Now that the IRS delays have subsided, TSG has returned to placing findings regarding tax transcripts on audits starting 04/01/2021.

Origination Agency Updates Related to COVID-19

March 31, 2021

Fannie Mae

Fannie Mae Updates LL-2021-03: Impact of COVID-19 on Originations

Updates Lender Letter (LL-2021-03) to extend the application dates for verbal verifications of employment and power of attorney flexibilities to Apr. 30, 2021. This will be the final extension for these policies. Applications dated May 1, 2021 and later will be subject to standard Selling Guide policies.

Effective: These temporary flexibilities became effective on Mar. 23, 2020 for all loans in process and are effective for loans with application dates on or before Apr. 30, 2021.

Many lenders are reporting difficulty in obtaining the verbal verification of employment (VOE) due to disruption to operations of the borrower’s employer. We expect lenders to attempt to obtain the verbal VOE in accordance with our existing requirements guidance. However, we will allow the following flexibilities: 

Written VOE: 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. In addition, the lender may obtain the VOE after loan closing, up to the time of loan delivery (though we strongly encourage getting the verbal VOE before the note date). 

Paystub: The lender may obtain a year-to-date paystub from the pay period that immediately precedes the note date. 

Bank statements: The lender can provide bank statements (or other alternative documentation as permitted by B3-4.2-01, Verification of Deposits and Assets) evidencing the payroll deposit from the pay period that immediately precedes the note date.

Requirements for borrowers using self-employment income to qualify

Effective: These policies became effective for loans with application dates on or after Jun. 11, 2020. The updated requirements to obtain three business depository account statements (increased from two statements) with an unaudited profit and loss statement and to review the depository account statements to support the level of business revenue reported in the current YTD profit and loss statement were effective for loan applications dated on and after Dec. 14, 2020. All policies are effective until further notice.

Income Analysis

Self-employment income is variable in nature and generally subject to changing market and economic conditions. Whether a business is impacted by an adverse event, such as COVID-19, and the extent to which business earnings are impacted can depend on the nature of the business or the demand for products or services offered by the business. Income from a business that has been negatively impacted by changing conditions is not necessarily ineligible for use in qualifying the borrower. However, the lender is required to determine if the borrower’s income is stable and has a reasonable expectation of continuance.

Due to the pandemic’s continuing impact on businesses throughout the country, lenders are now required to obtain the following additional documentation to support the decision that the self-employment income meets our requirements:

  • an audited year-to-date profit and loss statement reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date; or
  • an unaudited year-to-date profit and loss statement signed by the borrower reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date, and three business depository account(s) statements no older than the latest three months represented on the year-to-date profit and loss statement.
  • For example, the business depository account statements can be no older than Aug, Sep, Oct. for a year-to-date profit and loss statement dated through Oct. 31.
  • The lender must review the three most recent depository account statements to support the level of business revenue reported in the current year-to-date profit and loss statement. Otherwise, the lender must obtain additional statements or other documentation to support the on-going nature of business revenue reported in the current year-to-date profit and loss statement.

 

NOTE: The year-to-date profit and loss statement must be no older than 60 days old as of the note date consistent with current Age of Documentation requirements.

Lenders must review the profit and loss statement, and business depository accounts if required, and other relevant factors to determine the extent to which a business has been impacted by COVID-19. The lender can use the following guidance when performing the assessment of business operations and stability and must complete the business income assessment based on the minimum additional documentation above.

Business Income Calculation Adjustment

When the lender determines current year net business income has been impacted by the COVID-19 pandemic and is

  • less than the historical monthly income calculated using Form 1084, but is stable at its current level, the lender must reduce the amount of qualifying income calculated using Form 1084 to no more than the current level of stable income as determined by the lender.
  • more than the historical income calculated using Form 1084, the lender must use no more than the currently stable level of income calculated using Form 1084 to qualify the borrower.

In all cases, qualifying income must be supported by documentation, including any supplemental documentation obtained by the lender.

Business Assets

We are clarifying that proceeds from the Small Business Administration PPP or any other similar COVID-19 related loans or grants are not considered business assets. Refer to B3-4.2-02, Depository Accounts for details.

Verification of self-employment

Effective: These policies became effective for loans with application dates on or after Apr. 14, 2020 and are effective until further notice.

When a borrower is using self-employment income to qualify, the lender must verify the existence of the borrower’s business within 120 calendar days prior to the note date. Due to latency in system updates or recertifications using annual licenses, certifications, or government systems of record, lenders must take additional steps to confirm that the borrower’s business is open and operating. The lender must confirm this within 20 business days of the note date (or after closing but prior to delivery).

Below are examples of methods the lender may use to confirm the borrower’s business is currently operating:

  • evidence of current work (executed contracts or signed invoices that indicate the business is operating on the day the lender verifies self-employment);
  • evidence of current business receipts within 20 days of the note date (payment for services performed);
  • lender certification the business is open and operating (lender confirmed through a phone call or other means); or
  • business website demonstrating activity supporting current business operations (timely appointments for estimates or service can be scheduled).

See B3-3.1-07, Verbal Verification of Employment for our existing requirements.

Fannie Mae Updates LL-2021-04: Impact of COVID-19 on Appraisals

Temporary appraisal requirement flexibilities

On Mar. 23, 2020 we began allowing temporary flexibilities to our appraisal inspection and reporting requirements. As described below, we will accept an alternative to the traditional appraisal required under Selling Guide Chapter B4-1, Appraisal Requirements, when an interior inspection is not feasible because of COVID-19 concerns. We will allow either a desktop appraisal or an exterior-only inspection appraisal in lieu of the interior and exterior inspection appraisal (i.e., traditional appraisal).

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 us. 

Use of lender variances and temporary appraisal flexibilities.

The appraisal flexibilities announced in this Lender Letter may be combined with existing lender variances unless Fannie Mae notifies the lender that it may not combine negotiated terms with these flexibilities.

Regardless of specific lender variances, only Fannie Mae-owned, limited cash-out refinance transactions being sold to Fannie Mae and purchase transactions are eligible for the appraisal flexibility. 

Desktop appraisals

For purchase money transactions when an interior and exterior appraisal is not available, lenders are encouraged to obtain a desktop appraisal rather than an exterior-only appraisal.

The minimum scope of work for a desktop appraisal does not include an inspection of the subject property or comparable sales. The appraiser relies on public records, multiple listing service (MLS) information, and other third-party data sources to identify the property characteristics.

When a desktop appraisal is performed, reported on Form 1004 or Form 1073, and submitted to us through the Uniform Collateral Data Portal® (UCDP®), the appraisal will be scored by Collateral Underwriter® (CU® All loans with a CU risk score of 2.5 or less will receive value representation and warranty relief under Day 1 Certainty®. With desktop appraisals, lenders will have the added risk management and efficiency benefit of being able to use CU to aid in the appraisal review process.

As described below, Freddie Mac and Fannie Mae have worked together to develop documents that include modified appraisal report language for the scope of work, statement of assumptions and limiting conditions, and certifications that must be used with these appraisal forms.

Exhibits for desktop appraisals

Each desktop appraisal report must include the following exhibits:

  • a location map indicating the location of the subject and comparables, and
  • photographs of the subject property. We recognize that it may be challenging in some instances to obtain photographs; however, it is expected that the appraiser utilizes all available means to obtain relevant pictures of the subject property.

Exterior-only inspection appraisals

An exterior-only inspection appraisal may be obtained in lieu of an interior and exterior inspection appraisal for the following transactions:

  • purchase money loans
  • limited cash-out refinances where the loan being refinanced is owned by Fannie Mae

Lenders will not receive value representation and warranty relief under Day 1 Certainty® for loans with exterior-only appraisals.

Completion reports (Form 1004D)

We require the Appraisal Update and/or Completion Report (Form 1004D) to evidence completion when the appraisal report has been completed “subject to.” For all loans for which a completion certification is not available due to issues related to COVID-19, (excluding HomeStyle Renovation loans), we will permit a letter signed by the borrower confirming that the work was completed. Lenders must also provide further evidence of completion, which may include photographs of the completed work, paid invoices indicating completion, occupancy permits, or other substantially similar documentation. All completion documentation must be retained in the loan file.

Virtual inspections for appraisals and renovation loans Updated Mar. 11

Beginning Apr. 14, 2020, appraisers may use virtual inspection methods to augment the data and imagery that is used for either a desktop appraisal or an exterior-only appraisal. All traditional appraisals require the appraiser to perform a complete onsite interior and exterior inspection of the property. A virtual inspection cannot be used as a substitute for the onsite interior and exterior inspection for a traditional appraisal. Additionally, an onsite interior and exterior inspection is required for the Appraisal Update and/or Completion Report (Form 1004D) used to confirm completion of renovation for HomeStyle Renovation loans.

Note: Virtual inspections using video and photographs provided by the borrower or contractor can be used to evidence renovation progress to disburse additional renovation funds can be used only for loans with application dates on or before Apr. 30, 2021.

Flexibilities for condominium project review Updated Mar. 11

Effective: Beginning Apr. 14, 2020, we offered additional guidance and temporary flexibilities for project eligibility reviews on condo projects. This flexibility is effective for loans with application dates on or before Apr. 30, 2021. Applications dated May 1, 2021 or later will be subject to our standard Selling Guide policies.

Waiver of project review

We are extending project review waiver flexibilities for loans with LTV ratios greater than 80% and up to 90%. This flexibility applies to Fannie Mae-owned, limited cash-out refinance transactions for owner-occupied condo units only. Second homes and investment transactions are excluded. When applying this flexibility, lenders must confirm the project meets the following, existing requirements:

  • the litigation requirements described in Selling Guide B4-2.1-03, Ineligible Projects, and
  • all policies in Selling Guide B4-2.1-02, Waiver of Project Review, for all loans with LTV ratios greater than 80% using the waiver of review for Fannie Mae-owned limited cash-out refinance transactions.

Lenders must provide Project Type Code V in the loan delivery data file for these transactions. The use of other Project Type Codes may result in fatal edits at loan delivery. 

Freddie Mac

We continue to work closely with Fannie Mae under the guidance and direction of the FHFA to address the impacts of the coronavirus disease (COVID-19) pandemic on Borrowers and the Mortgage origination process.

In Guide Bulletin 2021-7, we extended the effective date for some previously announced temporary flexibilities for Mortgages with Application Received Dates through March 31, 2021.

Temporary extension

We are further extending the effective date for Mortgages with Application Received Dates through April 30, 2021 for the following flexibilities:

Temporary extension with notice of discontinuance

We are extending the effective date for the flexibilities shown in the table below for Mortgages with Application Received Dates through April 30, 2021; Mortgages with Application Received Dates on or after May 1, 2021 must comply with the applicable Guide requirements. This is the final extension of these temporary flexibilities. 

COVID-19 temporary flexibilities
Employed income – 10-day pre-closing verification
Condominium Projects
Power of attorney (POA)

 

COVID-19 FAQ UPDATES

We have updated the COVID-19 Selling FAQs to provide additional guidance. The updated and new FAQs are marked with today’s date for easy reference. 

Servicing Agency Updates Related to COVID-19

March 16, 2021

Freddie Mac

Freddie Mac Announces Guide Bulletin 2021-8 (Temporary Servicing Guidance Related to COVID-19)

EFFECTIVE DATE

All of the changes announced in this Bulletin are effective immediately unless otherwise noted.

COVID-19 FORECLOSURE MORATORIUM

We are extending the foreclosure moratorium last announced in Bulletin 2021-6. Servicers must suspend all foreclosure actions, including foreclosure sales, through June 30, 2021. This includes initiation of any judicial or non-judicial foreclosure process, move for foreclosure judgment or order of sale. This foreclosure suspension does not apply to Mortgages on properties that have been determined to be vacant or abandoned.

COVID-19 FORBEARANCE PLAN

To provide further assistance to Borrowers who enrolled in a COVID-19 forbearance plan prior to March 1, 2021, and who have reached the end of their 12-month term without having resolved their hardship we are extending the allowable term of the COVID-19 forbearance in accordance with the temporary requirements as described. These new requirements apply only to Borrowers who:

  • Have a COVID-19 related hardship; and
  • Are on an active forbearance plan for a COVID-19 hardship as of February 28, 2021.

For further information, please review the Freddie communication in its entirety.

ADDITIONAL RESOURCES

We encourage Servicers to review the following COVID-19 resources:

Freddie Mac Single-Family web page on COVID-19 resources

Freddie Mac Servicing FAQs on COVID-19

New Origination and Servicing Agency Updates to COVID-19 as of February 12, 2021

The StoneHill Group continually monitors the mortgage industry for changes that impact our clients. Here are the most recent Agency updates.

Origination Agency Updates Related to COVID-19

February 12, 2021

Freddie Mac Updates

Freddie Mac Announces Guide Bulletin 2021-7 (Extension of Temporary Flexibilities Related to COVID-19) (02/10/21)

SUBJECT: EXTENSION OF TEMPORARY FLEXIBILITIES RELATED TO COVID-19

Freddie Mac continues to work closely with Fannie Mae under the guidance and direction of the FHFA to address the ongoing economic implications and uncertainty related to the coronavirus disease (COVID-19) pandemic and its impacts on Borrowers and the Mortgage origination process.

In Bulletin 2021-1, we extended the effective date for some previously announced temporary flexibilities for Mortgages with Application Received Dates through February 28, 2021. We are further extending the effective date for Mortgages with Application Received Dates through March 31, 2021 for the following:

Freddie Mac Selling FAQs related to COVID-19 

FHA Updates

FHA Issues Multiple COVID-19 Temporary Policy Waivers

Today, the Federal Housing Administration (FHA) announced several temporary provisions issued through policy waivers to help mitigate the impacts of the COVID-19 pandemic on borrowers with FHA-insured mortgages and mortgagees. These provisions are part of the Biden Administration’s ongoing efforts to provide economic relief in response to the coronavirus pandemic. The following waivers build upon previously issued waivers and will be effective through December 31, 2021:

  • Regulatory and Handbook Waivers: Alternative Methods for Face-to-Face Interviews with Borrowers
  • Temporary Partial Waiver of Mortgagee Letter (ML) 2017-05: Home Equity Conversion Mortgages (HECM) Claim Type 22 (CT-22) Assignment Requests
  • Temporary Partial Waiver of ML 2015-11: Waive $5,000 Cap on Property Charge Repayment Plan. 

Temporary Regulatory and Handbook Waivers: Alternative Methods for

Face-to-Face Interviews with Borrowers

The temporary Regulatory and Handbook waivers allow mortgagees to utilize alternative methods for conducting borrower interviews, which are used to gather and convey information to assess the borrower’s circumstances, and to determine appropriate repayment plans as part of the early default intervention requirements of FHA default servicing. These waivers are effective through December 31, 2021.

Temporary Partial Waiver of ML 2017-05: HECM Claim Type CT-22

Assignment Requests

This temporary partial waiver of ML 2017-05 allows mortgagees to submit a CT-22 Assignment Claim without having to obtain a signature from the HECM borrower on an occupancy certification. Mortgagees must continue to obtain the HECM borrower’s annual certification. This temporary waiver is effective through December 31, 2021.

Temporary Partial Waiver of ML 2015-11: Waive $5,000 Cap on

Property Charge Repayment Plan

This temporary partial waiver of ML 2015-11, allows mortgagees to offer a recalculated repayment plan for unpaid property charges to HECM borrowers regardless of the total outstanding arrearage following a failed repayment plan. This temporary partial waiver is effective through December 31, 2021. 

Servicing Agency Updates Related to COVID-19

February 18, 2021

FHA

FHA INFO #21-09

FHA Extends its Foreclosure and Eviction Moratoria and Expands Temporary COVID-19 Forbearance and Servicing Polices to Provide Additional Homeowner Relief 

Recognizing the financial and other hardships many individuals and families are facing due to the ongoing COVID-19 pandemic, the Federal Housing Administration (FHA) is expanding its relief efforts to assist homeowners with FHA-insured mortgages.

In today’s Mortgagee Letter (ML) 2021-05, Extensions of Single Family Foreclosure and Eviction Moratorium, Start Date of COVID-19 Initial Forbearance, and Home Equity Conversion Mortgage (HECM) Extension Period; Expansion of COVID-19 Loss Mitigation Options, FHA outlines multiple COVID-19 related policy extensions and expansions that are designed make it easier for mortgagees to provide FHA-insured homeowners with the assistance they need to retain their homes during these challenging times.

The updated guidance in this ML is effective immediately and applies to all FHA Title II Single Family programs. The ML:

  • Extends the foreclosure and eviction moratoriums through June 30, 2021 and provides a 180-day extension to the deadlines for the first legal action and the reasonable diligence time frame from the date of the moratorium expiration.
  • Extends the dates to request an initial COVID-19 Forbearance or a COVID-19 Home Equity Conversion Mortgage (HECM) extension period through June 30, 2021.
  • Adds two COVID-19 Forbearance and COVID-19 HECM extension periods of up to three months each for borrowers who requested their initial COVID-19 Forbearance or COVID-19 HECM extension period on or before June 30, 2020, and are coming to the end of their 12-month period;
  • Expands eligibility for the COVID-19 loss mitigation options for certain borrowers regardless of whether they received a COVID-19 Forbearance; and
  • Eliminates the restriction on the number of permanent COVID-19 home retention options a borrower can receive.

For more information, read today’s Mortgagee Letter 2021-05 and Press Release.

Industry Webinar

In the coming days, FHA servicers and other interested parties will be able to access a pre-recorded webinar in which the various policy updates outlined in ML 2021-05 will be discussed in more detail. Viewing information and training materials will be available on the FHA Single Family Events and Training web page.

Webinar access information will be communicated through an FHA INFO when available.

FHA INFO #21-06

FHA Updates Its COVID-19 Forbearance Start Date and Home Equity Conversion Mortgage (HECM) Extension Period

The Federal Housing Administration (FHA) published Mortgagee Letter (ML) 2021-04, Update to the COVID-19 Forbearance Start Date and the COVID-19 Home Equity Conversion Mortgage (HECM) Extension Period today.

Effective immediately, this ML extends through March 31, 2021, the deadline for single family borrowers with FHA-insured mortgages to request an initial COVID-19 forbearance from their mortgage servicer to defer or reduce their mortgage payments for up to six months. If needed, this forbearance can be extended for an additional six months. This ML also extends the deadline to request the initial extension period for HECM borrowers impacted by the COVID-19 pandemic.

The means of communication between a borrower and their mortgage servicer regarding a COVID-19 forbearance, and the terms of the COVID-19 forbearance, remain the same as established in ML 2020-06 and ML 2020-22.

VA 

CIRC. 26-21-04 Approving Forbearance Requests for Veterans Affected by COVID-19 (02/16/21)

Background and Purpose: Veterans who have recently begun experiencing financial hardships due to the pandemic are uncertain about forbearance options available to them. Many Veterans who requested forbearance early on and have or will soon be coming to the end of their forbearance periods, are also uncertain. This Circular provides guidance for granting COVID-19 forbearance to Veterans who continue experiencing financial hardships, directly or indirectly, because of the pandemic.

Action. Under this Circular, VA expects servicers to approve a Veteran’s request for COVID-19 forbearance, or continued forbearance, if a Veteran is experiencing a financial hardship, directly or indirectly, due to COVID- 19, and the hardship negatively affects the Veteran’s ability to make on-time loan payments. Veterans with VA-guaranteed loans may be eligible for COVID-19 forbearance, regardless of the delinquency status of the VA-guaranteed loan. The Veteran’s initial request for COVID-19 forbearance may be granted for up to six months. If needed by the Veteran, the Veteran may request, and VA expects the servicer to approve, additional COVID-19 forbearance for up to six months. Servicers may approve a Veteran’s initial COVID-19 forbearance if the request is made on or before June 30, 2021. A COVID-19 forbearance period may extend through June 30, 2022.

For Veterans who requested their initial COVID-19 forbearance on or before June 30, 2020, VA expects that, if needed, the Veteran may request, and the servicer will approve, up to two additional three-month COVID-19 forbearance periods, after twelve months of COVID-19 forbearance. The Veteran must request each three-month extension individually. Neither of the two additional three-month COVID-19 forbearance periods may extend beyond December 31, 2021.

Any period of COVID-19 forbearance may be shortened at the Veteran’s request.

The servicer should waive all late charges, fees, and penalties, if any, that might otherwise accrue because of payments missed during a COVID-19 forbearance.

The COVID-19 forbearance described in this guidance does not supersede or otherwise eliminate the special forbearance loss mitigation option defined in 38 C.F.R. § 36.4301.

Rescission: This Circular is rescinded July 1, 2022

USDA

USDA Extends Eviction and Foreclosure Moratorium, and Offers Guidance on Mortgage Forbearance Deadline

PURPOSE

The purpose of this notice is to provide relief to and guidance for Single Family Housing Guaranteed Loan Program (SFHGLP) borrowers impacted by the COVID-19 pandemic.

Moratorium on Foreclosures and Evictions

The U.S. Department of Agriculture (USDA) Rural Development is extending its moratorium on foreclosures and evictions through June 30, 2021 for SFHGLP properties. After the moratorium ends, if the lender decides to proceed with foreclosure, the time for initiating or continuing foreclosure proceedings is extended from 90 days (as specified in 7 CFR 3555.307(a)) to 180 days. The moratorium does not apply in cases where the servicer has documented the property is vacant or abandoned.

Forbearance Policy

For borrowers who request an initial forbearance on or before June 30, 2021, lenders are expected to grant payment forbearance based on a borrower’s attestation (verbal or written) to financial hardship caused by the COVID-19 emergency. The initial forbearance period may be up to 180 days and the borrower may request an extension of up to an additional 180 days.

Borrowers who received an initial CARES Act forbearance before June 30, 2020, may be granted up to two additional three-month payment forbearances. The borrower must request each extension individually.

The term of the initial forbearance and any extension may be shortened at the borrower’s request.

Fees, penalties, or interest (beyond the amounts calculated as if the borrower had made all contractual payments in a timely fashion) should not accrue during the forbearance.

Upon completion of the forbearance the lender should communicate with the borrower and determine if they are able to resume making regular contractual payments. If so, the lender may offer the borrower either a written re-payment plan to resolve any amount due or at the borrower’s request, evaluate the borrower for one of the three options outlined in Chapter 18.15 of the Handbook-1-3555.

Questions regarding program policy and this guidance may be directed to the National Office Division at sfhglpServicing@usda.gov or (202) 720-1452.

 

New Origination and Servicing Agency Updates to COVID-19 as of January 19, 2021

The StoneHill Group continually monitors the mortgage industry for changes that impact our clients. Here are the most recent Agency updates.

Origination Agency Updates Related to COVID-19

January 19, 2021

Fannie Mae Updates:

Fannie Mae Updates LL-2020-04: Impact of COVID-19 on Appraisals

During this COVID-19 national emergency, in many cases lenders are unable to obtain an appraisal based on a full interior and exterior inspection of the subject property. In response, we are allowing temporary flexibilities to our appraisal requirements. We are working closely with Freddie Mac under the guidance of FHFA to offer these temporary measures.

Updates to Lender Letter on Dec. 10

Extension of effective date: extending the application dates eligible for these temporary flexibilities to Feb. 28, 2021, unless otherwise noted.

Updates to Lender Letter on Oct. 19, Sep.24, Aug. 27, Jul. 9, Jun. 11, and Nov. 13

We extended the application dates eligible for these temporary flexibilities.

 

Fannie Mae Updates LL-2020-03: Impact of COVID-19 on Originations

We are extending the application dates for verbal verifications of employment and power of attorney flexibilities to Feb. 28, 2021.

Requirements for borrowers using self-employment income to qualify.

Effective: The updated requirement to obtain and review three business depository account statements (increased from two statements) with an unaudited profit and loss statement is effective for loan applications dated on and after Dec. 14, 2020. Lenders are encouraged to apply this requirement to existing loans in process but are not required to. All policies are effective until further notice.

Income Analysis

Self-employment income is variable in nature and generally subject to changing market and economic conditions. Whether a business is impacted by an adverse event, such as COVID-19, and the extent to which business earnings are impacted can depend on the nature of the business or the demand for products or services offered by the business. Income from a business that has been negatively impacted by changing conditions is not necessarily ineligible for use in qualifying the borrower. However, the lender is required to determine if the borrower’s income is stable and has a reasonable expectation of continuance.

Due to the pandemic’s continuing impact on businesses throughout the country, lenders are now required to obtain the following additional documentation to support the decision that the self-employment income meets our requirements:

an audited year-to-date profit and loss statement reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date; or

an unaudited year-to-date profit and loss statement signed by the borrower reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date, and three business depository account(s) statements no older than the latest three months represented on the year-to-date profit and loss statement.

For example, the business depository account statements can be no older than Aug, Sep, Oct. for a year-to-date profit and loss statement dated through Oct. 31.

The lender must review the three most recent depository account statements to support the level of business revenue reported in the current year-to-date profit and loss statement. Otherwise, the lender must obtain additional statements or other documentation to support the on-going nature of business revenue reported in the current year-to-date profit and loss statement.

NOTE: The year-to-date profit and loss statement must be no older than 60 days old as of the note date consistent with current Age of Documentation requirements.

Lenders must review the profit and loss statement, and business depository accounts if required, and other relevant factors to determine the extent to which a business has been impacted by COVID-19. The lender can use the following guidance when performing the assessment of business operations and stability and must complete the business income assessment based on the minimum additional documentation above.

Business Income Calculation Adjustment

When the lender determines current year net business income has been impacted by the COVID-19 pandemic and is

less than the historical monthly income calculated using Form 1084, but is stable at its current level, the lender must reduce the amount of qualifying income calculated using Form 1084 to no more than the current level of stable income as determined by the lender (see Business Income above).

more than the historical income calculated using Form 1084, the lender must use no more than the currently stable level of income calculated using Form 1084 to qualify the borrower.

In all cases, qualifying income must be supported by documentation, including any supplemental documentation obtained by the lender.

Business Assets

We are clarifying that proceeds from the Small Business Administration PPP or any other similar COVID-19 related loans or grants are not considered business assets. Refer to B3-4.2-02, Depository Accounts for details.

Temporary eligibility requirements for purchase and refinance transactions

Effective: Lenders may immediately apply these policies to loans in process and must apply them to loans with application dates on or after Jun. 2, 2020. These policies will be effective until further notice.

In response to lender feedback, we are addressing eligibility requirements for borrowers impacted by the COVID-19 pandemic. With this update we are providing eligibility guidelines for purchase and refinance transactions.

Lenders must continue to review the borrower’s credit report to determine the status of all mortgage loans. In addition to reviewing the credit report, the lender must also apply due diligence for each mortgage loan on which the borrower is obligated, including co-signed mortgage loans and mortgage loans not related to the subject transaction, to determine whether the payments are current as of the note date of the new transaction. For the purposes of these requirements, “current” means the borrower has made all mortgage payments due in the month prior to the note date of the new loan transaction by no later than the last business day of that month. Examples of acceptable additional due diligence methods to document the loan file include:

  • a loan payment history from the servicer or third-party verification service,
  • a payoff statement (for mortgages being refinanced)
  • the latest mortgage account statement from the borrower, an
  • a verification of mortgage.

A borrower who is not current and has missed payments on any mortgage loan is eligible for a new mortgage loan if those missed payments were resolved in accordance with the applicable requirements.

 

We are not considering payments missed during the time of a COVID-19-related forbearance that have been resolved to be historical delinquencies for purposes of our excessive mortgage delinquency policy as outlined in B3-5.3-03, Previous Mortgage Payment History. This flexibility does not apply to high LTV refinance loans, which must continue to meet the payment history requirements in B5-7-02, High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan.

Unemployment benefits as qualifying income

We are reminding lenders of our current policy in the Selling Guide pertaining to the use of unemployment benefits. Per B3-3.1-09, Other Sources of Income, unemployment benefits cannot be used to qualify a borrower unless they are clearly associated with seasonal employment that is reported on the borrower’s signed federal income tax returns. We recognize that many unemployed and furloughed individuals are eligible for unemployment benefits under the CARES Act; however, unemployment compensation is short-term in nature and is therefore not a reliable and predictable source of income for borrowers who are not established seasonal workers.

Furloughed borrowers

The COVID-19 pandemic has resulted in an increase in furloughed employees. A furlough is a suspension from active employment that does not typically guarantee restoration of an employee’s position when the furlough period ends. Until furloughed employees actually return to work, they are unable to provide evidence of a stable and reliable flow of employment-related income and are therefore ineligible under our Temporary Leave Income policy in B3-3.1-09, Other Sources of Income.

FHA Updates:

 

Temporary Waiver of Quality Control (QC) Requirements for Field Reviews of Appraisals

  

The Federal Housing Administration (FHA) issued a temporary waiver of its Single Family Housing Policy Handbook 4000.1 (SF Handbook) to provide mortgagees with flexibility related to quality control (QC) field reviews of appraisals. This temporary waiver is similar to the temporary partial waiver announced in FHA INFO #20-44 on June 22, 2020.

Considering the social distancing requirements in place in many areas of the country, as a result of the Presidentially-Declared COVID-19 National Emergency, mortgagees may be unable to conduct targeted field reviews of appraisals of FHA-insured mortgages selected for the monthly QC sample. Therefore, FHA is providing mortgagees with flexibility by temporarily waiving part of its requirements found in SF Handbook, Section V.A.3.c.ii(C)(1)(b).

With this waiver, mortgagees are permitted to use third-party tools as an alternative to field reviews of appraisals. Mortgagees must continue to meet all other appraisal QC requirements in the SF Handbook, Section V.A.3.c.ii(C). For example, mortgagees must conduct desk reviews of appraisals following the standards described in Section V.A.3.c.ii(C)(1)(a).

This temporary waiver applies to QC reviews currently in process and for cases selected as part of a mortgagee’s QC selections until further notice.

ML 2020-47: Extension of Re-verification of Employment and Exterior only Appraisal scope of work option for Federal Housing Administration (FHA) Single Family programs impacted by the Coronavirus Disease of 2019 (COVID-19) (12/17/20)

Purpose

The purpose of this Mortgagee Letter (ML) is to announce the extension of the re-verification of employment guidance in ML 2020-05; and extend the Exterior-Only Appraisal inspection option in ML 2020-37.

Effective Date

The continuation of re-verification of employment guidance in ML 2020-05 is effective immediately for cases closed on or before February 28, 2021.

The extension of the Exterior-Only Appraisal inspection option in ML 2020-37 is effective immediately for appraisals with an effective date on or before February 28, 2021.

Policy updates in this ML are temporary and will not be incorporated into the Department of Housing and Urban Development (HUD) Single Family Housing Policy Handbook 4000.1.

 

ML 2020-46: Extension of Temporary Guidance for COVID-19 Multisubject: Updated Temporary Guidance for Verification of Self-Employment; Rental Income; 203(k) Rehabilitation Escrow Account (12/17/20)

 

Purpose

The purpose of this Mortgagee Letter (ML) is to further extend the temporary guidance published in ML 2020-24, dated July 27, 2020, and extended in ML 2020-40, dated November 25, 2020. This extension will allow industry partners additional opportunity to utilize flexible guidance related to verification of self-employment and verification of Rental Income for Single Family Title II Forward Mortgage and HECM Programs, and 203(k) escrow administration for the 203(k) Rehabilitation Program, in response to impacts from the Presidentially Declared COVID-19 National Emergency.

 

Effective Date

Effective immediately, the verification of business operations for self-employed borrowers and the Rental Income guidance in ML 2020-24 is extended for case numbers assigned on or before February 28, 2021.

 

USDA Updates:

Extension of Temporary Exceptions: The temporary exceptions originally issued on March 27, 2020, pertaining to appraisals, repair inspections, and income verifications for the Single-Family Housing Guaranteed Loan Program (SFHGLP) due to the COVID-19 pandemic have been extended until February 28, 2021 and apply to the requirements in the program handbook HB-1-3555 for new loans, described below

Residential Appraisal Reports Existing Dwelling

For purchase and non-streamlined refinance transactions, when an appraiser is unable to complete an interior inspection of an existing dwelling due to concerns associated with the COVID-19 pandemic, an Exterior-Only Inspection Residential Appraisal Report, (FHLMC 2055/FNMA 2055) will be accepted. In such cases, appraisers are not required to certify that the property meets HUD HB 4000.1 standards. The appraisal must be completed in accordance with the Uniform Standards of Professional Practice (USPAP) and the Uniform Appraisal Dataset (UAD).

This exception is not applicable to existing manufactured housing pilot program, new construction properties, or construction to permanent loans. As a reminder, appraisals are not required for streamlined and streamlined-assist refinance transactions.

Repair Inspections Existing Dwelling

Loans for which a completion certification is not available due to issues related to the COVID-19 pandemic, a letter signed by the borrower confirming that the work was completed is permitted. Lenders must also provide further evidence of completion, which may include photographs of the completed work, paid invoices indicating completion, occupancy permits, or other substantially similar documentation. All completion documentation must be retained in the loan file.

This exception is not applicable to rehabilitation and repair loans noted in section 12.28 of HB-1-3555

Verbal Verification of Employment

Lenders should use due diligence in obtaining the most recent income documentation to verify the borrower’s repayment ability prior to closing. When the lender is unable to obtain a Verbal Verification of Employment (VVOE) within 10 business days of loan closing due to a temporary closure of the borrower’s employment, alternatives should be explored. For example, email correspondence with the borrower’s employer is an acceptable alternative to a VVOE. If the lender is unable to obtain a VVOE or acceptable alternative, the requirement will be waived when the borrower has a minimum of 2 months cash reserves.

In the case of a reduction of income, the borrower’s reduced income must be sufficient to support the new loan payment and other non-housing obligations. Borrower’s with no income or those receiving unemployment benefits at the time of closing are not eligible for SFHGLP loans regardless of available cash reserves.

Servicing Agency Updates Related to COVID-19

January 20, 2021

Fannie Mae

Fannie Mae Updates Policies on Impact of COVID-19 on Servicing – LL-2021-02 (1/20/21)

Suspension of foreclosure activities and certain bankruptcy requirements Updated Jan. 20

Servicers must continue the suspension of the following foreclosure-related activities through Feb. 28, 2021. Servicers may not, except with respect to a vacant or abandoned property:

  • initiate any judicial or non-judicial foreclosure process,
  • move for a foreclosure judgment or order of sale, or
  • execute a foreclosure sale.

This suspension does not apply to mortgage loans secured by properties that have been determined to be vacant or abandoned.

We generally require servicers to file motions for relief from the automatic stay in bankruptcy cases upon certain milestones. In light of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and other impacts resulting from the COVID-19 National Emergency, on Apr. 8, 2020, we temporarily relieved servicers of the obligation to meet these timelines. We are continuing this temporary suspension. Servicers must continue to work with their bankruptcy counsel to determine the appropriate time to file such motions.

 

Mortgage Insurance Termination

When verifying an acceptable payment record for a borrower that has had a financial hardship related to COVID-19 in which the servicer provided

  • a COVID-19 related forbearance plan, repayment plan, or Trial Period Plan and the borrower complied with the terms of such plan.
  • a payment deferral; or
  • a COVID-19 payment deferral and the borrower made three consecutive monthly payments following completion of the payment deferral,

the servicer must not consider any payment that is 30 or more days past due in the last 12 months, or 60 or more days past due in the last 24 months that is attributable to the COVID-19 financial hardship. The mortgage loan must be current when the termination is requested, which means the mortgage loan payment for the month preceding the date of the termination request was paid.

NOTE: These requirements apply when reviewing the borrower’s request for termination of conventional MI based on either original or current value of the property.

 

Disbursing insurance loss proceeds

In response to servicer inquiries and in an effort to repair properties that experience an insured loss event as expeditiously as possible, we are updating our requirements for determining the mortgage loan status for disbursing insurance loss proceeds for a borrower impacted by COVID-19. The servicer must consider the loan to be current or less than 31 days delinquent for purposes of disbursing insurance loss proceeds if

  • the borrower experienced a COVID-19 related hardship.
  • the mortgage loan was current or less than two months delinquent as of Mar. 1, 2020, the effective date of the National Emergency declaration related to COVID-19; and
  • at the time of the loss event, the borrower is performing on a COVID-19 related forbearance plan, repayment plan, or Trial Period Plan.

The servicer must otherwise disburse the proceeds in accordance with Servicing Guide B-5-01, Insured Loss Events.

The servicer must document in the mortgage loan servicing file the date that the COVID related hardship began and the date of the insured loss event.

 

Reporting a reason for delinquency code

The servicer must report delinquency status information to Fannie Mae through Fannie Mae’s servicing solutions system in accordance with Servicing Guide D2-4-01, Reporting a Delinquent Mortgage Loan to Fannie Mae and F-1-22, Reporting a Delinquent Mortgage Loan via Fannie Mae’s Servicing Solutions System.

In an effort to enable us to identify mortgage loans where the borrower has experienced a hardship associated with COVID-19 while not resulting in a system impact for us or you, the servicer must report reason for delinquency code 022, Energy- Environment Costs, when reporting the delinquency status of such mortgage loans to us. If the borrower’s COVID-19 related hardship remains unresolved and the borrower experiences another hardship concurrently (for example, a disaster event), the servicer must continue to report reason for delinquency code 022, Energy- Environment Costs, regardless of the reason for delinquency associated with the concurrent hardship.

For mortgage loans where the servicer would have otherwise reported reason for delinquency code 022 due to Energy-Environment Costs, the servicer must now use reason for delinquency code 007, Excessive Obligations.

 

Property inspections and preservation

As a result of the impact of COVID-19, we are temporarily providing flexibility with respect to the completion of property inspections and preservation, including:

  • inspections for properties securing a delinquent mortgage loan as described in Servicing GuideD2-2-10, Requirements for Performing Property Inspections.
  • inspections related to hazard loss repairs as described in Servicing GuideB-5-01, Insured Loss Events, and
  • property preservation activities as described in Servicing GuideE-3.2-12, Performing Property Preservation During Foreclosure Proceedings.

 

Forbearance plan terms

When determining eligibility for a forbearance plan for a borrower impacted by COVID-19, the property securing the mortgage loan may be either a principal residence, a second home, or an investment property. The servicer must otherwise follow the requirements in Servicing Guide D2-3.2-01, Forbearance Plan. In response to the CARES Act, the servicer must approve forbearance plans for borrowers impacted by COVID-19 in accordance with the CARES Act.

The CARES Act states that a forbearance plan must be provided to any borrower who requests a forbearance with an attestation of the financial hardship caused by the COVID-19 emergency; and no additional documentation other than the borrower’s attestation to a financial hardship caused by the COVID-19 emergency is required. Such a borrower must be provided an initial forbearance plan for a period up to 180 days, and that forbearance period may be extended for up to an additional 180 days at the request of the borrower. In accordance with D2-3.2-01, the servicer may provide an initial forbearance period, and any extended forbearance period, in separate, shorter increments. If the borrower’s COVID-19 related hardship has not been resolved during an incremental forbearance period, the servicer must extend the borrower’s forbearance period, not to exceed 12 months total. For a borrower impacted by COVID-19, we are temporarily eliminating the requirement that the servicer must receive our prior written approval for a forbearance plan that would result in the mortgage loan becoming greater than 12 months delinquent.

As a reminder, servicers must inform the borrower that the payments which are the subject of a forbearance plan have only been delayed or reduced, not forgiven, and that once the forbearance plan is complete, one of the following must occur:

  • the mortgage loan must be brought current through a reinstatement,
  • the borrower is approved for another workout option,
  • the mortgage loan is paid in full, or
  • the servicer refers the mortgage loan to foreclosure in accordance with applicable law.

The servicer must also inform the borrower that he or she may shorten a forbearance plan term at any time to reduce the amount of payments which are being delayed or reduced.

As stated in D2-3.2-01, the forbearance plan terms must be provided to the borrower using the appropriate Evaluation Notice, which must be revised in accordance with applicable law. In addition, the servicer must document in the individual mortgage loan file the borrower’s request for forbearance and attestation as to a financial hardship caused by the COVID-19 emergency, and the terms of the initial and any extended forbearance, including the duration of the forbearance period.

 

Evaluating the borrower for a workout option after a forbearance plan

For borrowers who have received a forbearance plan in response to COVID-19, the servicer must begin attempts to contact the borrower no later than 30 days prior to the expiration of the forbearance plan term, and must continue outreach attempts until either QRPC is achieved or the forbearance plan term has expired. When evaluating the borrower for a workout option prior to expiration of the forbearance plan, we are providing flexibility with regard to achieving QRPC. We are eliminating the requirement that the servicer determine the occupancy status of the property and will consider the servicer obtaining the following as achieving QRPC for purposes of evaluating a borrower who has experienced a hardship resulting from COVID-19:

  • determining the reason for the delinquency and whether it is temporary or permanent in nature,
  • determining whether or not the borrower has the ability to repay the mortgage loan debt,
  • educating the borrower on the availability of workout options, as appropriate, and
  • obtaining a commitment from the borrower to resolve the delinquency.

In Lender Letter LL-2020-07, COVID-19 Payment Deferral we introduced COVID-19 payment deferral, a new home retention workout option jointly developed with Freddie Mac at the direction of FHFA, to assist borrowers who have resolved their COVID-19 related hardship. The servicer must evaluate borrowers for a COVID-19 payment deferral in accordance with the eligibility requirements and evaluation hierarchy described in the Lender Letter.

Credit bureau reporting

The servicer must report the status of the mortgage loan to the credit bureaus in accordance with Servicing Guide C-4.1-01, Notifying Credit Repositories, and applicable law, including the Fair Credit Reporting Act (FCRA) as amended by the CARES Act, for borrowers affected by the COVID-19 emergency.

 

Freddie Mac

Freddie Mac Announces Guide Bulletin 2021-3 (Extension of the COVID-19 Foreclosure Moratorium)

EXTENSION OF THE COVID-19 FORECLOSURE MORATORIUM

We are extending the foreclosure moratorium announced in Guide Bulletins 2020-42020-102020-162020-252020-34 and 2020-46. Servicers must suspend all foreclosure actions, including foreclosure sales, through February 28, 2021. This includes initiation of any judicial or non-judicial foreclosure process, move for foreclosure judgment or order of sale. This foreclosure suspension does not apply to Mortgages on properties that have been determined to be vacant or abandoned.

FHA

Announces Second Update to the COVID-19 Forbearance Start Date and the COVID- 19 Home Equity Conversion Mortgage (HECM) Extension Period

Summary of Changes

This ML updates ML 2020-06 by allowing Mortgagees to approve FHA borrowers to begin a COVID-19 Forbearance and extensions to HECM deadlines for HECM borrowers impacted by COVID-19, through February 28, 2021.

 

USDA

USDA Extends Eviction Moratorium, Foreclosure Moratorium, and Mortgage Forbearance Deadline to March 31, 2021.

The purpose of this announcement is to inform lenders of an extension to the foreclosure and eviction moratoriums, and the forbearance deadline for all USDA Single Family Housing Guaranteed Loans Program (SFHGLP).

Foreclosure and Eviction Moratorium Extension:

Effective immediately, borrowers with USDA guaranteed loans are subject to a moratorium on foreclosure until March 31, 2021. The moratorium applies to the initiation of foreclosures and to the completion of foreclosures in process.

Similarly, evictions of persons from properties secured by USDA guaranteed loans are also suspended until March 31, 2021.

In addition, deadlines of the first legal action and reasonable diligence timelines are extended until March 31, 2021.

Forbearance Requirements and Deadline Extension:

Lenders should continue to provide impacted borrowers relief in accordance with the CARES Act by offering forbearance of the borrower guaranteed loan payment for up to 180 days. In addition, the initial forbearance period may be extended up to an additional 180 days at the borrower’s request. Lenders should outline potential solutions that may be available at the end of the forbearance payment and explain to borrowers that a lump sum payment of the arrearage will not be required.

During the forbearance options outlined above, no accrual of fees, penalties or interest may be charged to the borrower beyond the amounts calculated as if the borrower had made all contractual payments in a timely fashion.

Lenders may approve the initial 180-day COVID-19 Forbearance no later than the earlier of the termination date of the national emergency declared by the President on March 13, 2020 or March 31, 2021.

Loan servicers seeking to assist SFHGLP borrowers may also pursue any of the relief options referenced in Chapter 18 of the program Handbook found at: https://link.edgepilot.com/s/28507a10/PQVUMvZWdkaNJ44j14TBTw?u=https://www.rd.usda.gov/files/hb-1-3555.pdf

Foreclosure Moratorium Extension and Additional Guidance for Servicing Loans Impacted by COVID-19

The purpose of this announcement is to inform lenders of additional guidance to provide support to borrowers impacted by the Presidentially declared COVID-19 National Emergency.

Moratorium Extension:

The foreclosure and eviction moratorium announced by USDA, Single Family Housing Guaranteed Loan Program (SFHGLP) on March 19, 2020, is extended until February 28, 2021.

The moratorium does not apply in cases where the servicer has documented the property is vacant or abandoned.

Forbearance Requirements:

Lender should continue to provide impacted borrowers relief in accordance with the CARES Act by offering forbearance of the borrower guaranteed loan payment for up to 180 days. In addition, the initial forbearance period may be extended up to an additional 180 days at the borrower’s request. Lenders should outline potential solutions that may be available at the end of the forbearance payment and explain to borrowers that a lump sum payment of the arrearage will not be required.

During the forbearance options outlined above, no accrual of fees, penalties or interest may be charged to the borrower beyond the amounts calculated as if the borrower had made all contractual payments in a timely fashion.

Lenders may approve the initial 180-day COVID-19 Forbearance no later than the earlier of the termination date of the national emergency declared by the President on March 13, 2020 or February 28, 2021.

Post Forbearance Options:

Upon completion of the forbearance, the lender shall work with the borrower to determine if they can resume making regular payments and, if so, either offer an affordable repayment plan or term extension to defer any missed payments to the end of the loan. If the borrower is unable to resume making regular payments, the lender should evaluate the borrower for all available loss mitigation options outlined in HB-1-3555. The special relief measured that are outlined in Chapter 18 Section 5 Assistance in Natural Disasters will apply. These options include Term Extensions, Capitalization and Term Extensions, and a Mortgage Recovery Advance.

 

 

 

 

New Origination and Servicing Agency Updates to COVID-19 as of November 17, 2020

The StoneHill Group continually monitors the mortgage industry for changes that impact our clients. Here are the most recent Agency updates.

Origination Agency Updates Related to COVID-19

November 17, 2020

Fannie Mae

LL-2020-04: Impact of COVID-19 on Appraisals (03/23/20 Updated 11/13/20)

Temporary appraisal requirement flexibilities – Extension

Effective immediately, we are allowing temporary flexibilities to our appraisal inspection and reporting requirements. As described below, we will accept an alternative to the traditional appraisal required under Selling Guide Chapter B4-1, Appraisal Requirements, when an interior inspection is not feasible because of COVID-19 concerns. We will allow either a desktop appraisal or an exterior-only inspection appraisal in lieu of the interior and exterior inspection appraisal (i.e., traditional appraisal).

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 us.

Desktop appraisals

For purchase money transactions when an interior and exterior appraisal is not available, lenders are encouraged to obtain a desktop appraisal rather than an exterior-only appraisal.

The minimum scope of work for a desktop appraisal does not include an inspection of the subject property or comparable sales. The appraiser relies on public records, multiple listing service (MLS) information, and other third-party data sources to identify the property characteristics.

When a desktop appraisal is performed, reported on Form 1004 or Form 1073, and submitted to us through the Uniform Collateral Data Portal® (UCDP®), the appraisal will be scored by Collateral Underwriter® (CU®). All loans with a CU risk score of 2.5 or less will receive value representation and warranty relief under Day 1 Certainty. With desktop appraisals, lenders will have the added risk management and efficiency benefit of being able to use CU to aid in the appraisal review process.

Exhibits for desktop appraisals

Each desktop appraisal report must include the following exhibits:

  • a location map indicating the location of the subject and comparables, and
  • photographs of the subject property. We recognize that it may be challenging in some instances to obtain photographs; however, it is expected that the appraiser utilizes available means to obtain relevant pictures of the subject property.

Exterior-only inspection appraisals

An exterior-only inspection appraisal may be obtained in lieu of an interior and exterior inspection appraisal for the following transactions:

  • purchase money loans
  • limited cash-out refinances where the loan being refinanced is owned by Fannie Mae

Lenders will not receive value representation and warranty relief under Day 1 Certainty® for loans with exterior-only appraisals.

Exhibits for exterior-only inspection appraisals

Lenders are reminded that the following exhibits to the appraisal report are required for an exterior-only inspection appraisal:

  • a street map that shows the location of the subject property and of all comparable sales that the appraiser used;
  • clear, descriptive photographs (either in black and white or color) that show the front of the subject property, and that are appropriately identified (photographs must be originals that are produced either by photography or electronic imaging); and
  • any other data–as an attachment or addendum to the appraisal report form–that are necessary to provide an adequately supported opinion of market value.

 

Fannie Mae Updates LL-2020-03: Impact of COVID-19 on Originations (03/23/20 Updated 11/13/20)

We are extending the temporary flexibilities related to verbal verifications of employment to loans with application dates on or before Dec. 31, 2020 from Nov. 30, 2020. (The dates have been updated in the applicable sections below.) All other policies remain effective until further notice.

COVID November 13th Update

 

Requirements for borrowers using self-employment income to qualify UPDATED Nov. 13

Effective: The updated requirement to obtain and review three business depository account statements (increased from two statements) with an unaudited profit and loss statement is effective for loan applications dated on and after Dec. 14, 2020. Lenders are encouraged to apply this requirement to existing loans in process, but are not required to. All policies are effective until further notice.

Income Analysis

Self-employment income is variable in nature and generally subject to changing market and economic conditions. Whether a business is impacted by an adverse event, such as COVID-19, and the extent to which business earnings are impacted can depend on the nature of the business or the demand for products or services offered by the business. Income from a business that has been negatively impacted by changing conditions is not necessarily ineligible for use in qualifying the borrower. However, the lender is required to determine if the borrower’s income is stable and has a reasonable expectation of continuance.

Due to the pandemic’s continuing impact on businesses throughout the country, lenders are now required to obtain the following additional documentation to support the decision that the self-employment income meets our requirements:

 

  • an audited year-to-date profit and loss statement reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date; or
  • an unaudited year-to-date profit and loss statement signed by the borrower reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date, and three business depository account(s) statements no older than the latest three months represented on the year-to-date profit and loss statement.

 

For example, the business depository account statements can be no older than Aug, Sep, Oct. for a year-to-date profit and loss statement dated through Oct. 31.

  • The lender must review the three most recent depository account statements to support the level of business revenue reported in the current year-to-date profit and loss statement. Otherwise, the lender must obtain additional statements or other documentation to support the on-going nature of business revenue reported in the current year-to-date profit and loss statement.

 

NOTE: The year-to-date profit and loss statement must be no older than 60 days old as of the note date consistent with current Age of Documentation

Lenders must review the profit and loss statement, and business depository accounts if required, and other relevant factors to determine the extent to which a business has been impacted by COVID-19. The lender can use the following guidance when performing the assessment of business operations and stability and must complete the business income assessment based on the minimum additional documentation above.

Business Income Calculation Adjustment

When the lender determines current year net business income has been impacted by the COVID-19 pandemic and is

  • less than the historical monthly income calculated using Form 1084, but is stable at its current level, the lender must reduce the amount of qualifying income calculated using Form 1084 to no more than the current level of stable income as determined by the lender (see Business Income above).
  • more than the historical income calculated using Form 1084, the lender must use no more than the currently stable level of income calculated using Form 1084 to qualify the borrower.

In all cases, qualifying income must be supported by documentation, including any supplemental documentation obtained by the lender.

Business Assets

We are clarifying that proceeds from the Small Business Administration PPP or any other similar COVID-19 related loans or grants are not considered business assets. Refer to B3-4.2-02, Depository Accounts for details.

Temporary eligibility requirements for purchase and refinance transactions

Effective: Lenders may immediately apply these policies to loans in process and must apply them to loans with application dates on or after Jun. 2, 2020. These policies will be effective until further notice.

In response to lender feedback, we are addressing eligibility requirements for borrowers impacted by the COVID-19 pandemic. With this update we are providing eligibility guidelines for purchase and refinance transactions.

Lenders must continue to review the borrower’s credit report to determine the status of all mortgage loans. In addition to reviewing the credit report, the lender must also apply due diligence for each mortgage loan on which the borrower is obligated, including co-signed mortgage loans and mortgage loans not related to the subject transaction, to determine whether the payments are current as of the note date of the new transaction. For the purposes of these requirements, “current” means the borrower has made all mortgage payments due in the month prior to the note date of the new loan transaction by no later than the last business day of that month. Examples of acceptable additional due diligence methods to document the loan file include:

  • a loan payment history from the servicer or third-party verification service,
  • a payoff statement (for mortgages being refinanced),
  • the latest mortgage account statement from the borrower, and
  • a verification of mortgage.

We are not considering payments missed during the time of a COVID-19-related forbearance that have been resolved to be historical delinquencies for purposes of our excessive mortgage delinquency policy as outlined in B3-5.3-03, Previous Mortgage Payment History. This flexibility does not apply to high LTV refinance loans, which must continue to meet the payment history requirements in B5-7-02, High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan.

Unemployment benefits as qualifying income

We are reminding lenders of our current policy in the Selling Guide pertaining to the use of unemployment benefits. Per B3-3.1-09, Other Sources of Income, unemployment benefits cannot be used to qualify a borrower unless they are clearly associated with seasonal employment that is reported on the borrower’s signed federal income tax returns. We recognize that many unemployed and furloughed individuals are eligible for unemployment benefits under the CARES Act; however, unemployment compensation is short-term in nature and is therefore not a reliable and predictable source of income for borrowers who are not established seasonal workers.

Furloughed borrowers

The COVID-19 pandemic has resulted in an increase in furloughed employees. A furlough is a suspension from active employment that does not typically guarantee restoration of an employee’s position when the furlough period ends. Until furloughed employees actually return to work, they are unable to provide evidence of a stable and reliable flow of employment-related income and are therefore ineligible under our Temporary Leave Income policy in B3-3.1-09, Other Sources of Income.

 

USDA Updated and Reminders

October 29, 2020

Extension of Temporary Exceptions: The temporary exceptions originally issued on March 27, 2020, pertaining to appraisals, repair inspections, and income verifications for the Single Family Housing Guaranteed Loan Program (SFHGLP) due to the COVID-19 pandemic have been extended until December 31, 2020 and apply to the requirements in the program handbook HB-1-3555 for new loans, described below.

Residential Appraisal Reports Existing Dwelling

For purchase and non-streamlined refinance transactions, when an appraiser is unable to complete an interior inspection of an existing dwelling due to concerns associated with the COVID-19 pandemic, an Exterior-Only Inspection Residential Appraisal Report, (FHLMC 2055/FNMA 2055) will be accepted. In such cases, appraisers are not required to certify that the property meets HUD HB 4000.1 standards. The appraisal must be completed in accordance with the Uniform Standards of Professional Practice (USPAP) and the Uniform Appraisal Dataset (UAD).

This exception is not applicable to existing manufactured housing pilot program, new construction properties, or construction to permanent loans. As a reminder, appraisals are not required for streamlined and streamlined-assist refinance transactions.

Repair Inspections Existing Dwelling

Loans for which a completion certification is not available due to issues related to the COVID-19 pandemic, a letter signed by the borrower confirming that the work was completed is permitted. Lenders must also provide further evidence of completion, which may include photographs of the completed work, paid invoices indicating completion, occupancy permits, or other substantially similar documentation. All completion documentation must be retained in the loan file.

This exception is not applicable to rehabilitation and repair loans noted in section 12.28 of HB-1-3555

Verbal Verification of Employment

Lenders should use due diligence in obtaining the most recent income documentation to verify the borrower’s repayment ability prior to closing. When the lender is unable to obtain a Verbal Verification of Employment (VVOE) within 10 business days of loan closing due to a temporary closure of the borrower’s employment, alternatives should be explored. For example, email correspondence with the borrower’s employer is an acceptable alternative to a VVOE. If the lender is unable to obtain a VVOE or acceptable alternative, the requirement will be waived when the borrower has a minimum of 2 months cash reserves.

In the case of a reduction of income, the borrower’s reduced income must be sufficient to support the new loan payment and other non-housing obligations. Borrower’s with no income or those receiving unemployment benefits at the time of closing are not eligible for SFHGLP loans regardless of available cash reserves.

Questions regarding program policy and this announcement may be directed to the National Office Division at sfhgld.program@usda.gov or (202) 720-1452.

Servicing Agency Updates Related to COVID-19

November 18, 2020

Fannie Mae

LL-2020-07: COVID-19 Payment Deferral (05/13/20 Updated 11/18/20)

The servicer must not require a complete Borrower Response Package (BRP) to evaluate the borrower for a COVID-19 payment deferral if the eligibility criteria are satisfied.

In order to be eligible for a COVID-19 payment deferral, the criteria reflected below must be met.

The borrower must

  • be on a COVID-19 related forbearance plan, or
  • have experienced a financial hardship resulting from COVID-19 (for example, unemployment, reduction in regular work hours, or illness of a borrower/co-borrower or dependent family member) that has impacted their ability to make their full monthly contractual payment.

NOTE: The servicer is not required to obtain documentation of the borrower’s hardship.

The servicer must achieve Quality Right Party Contact (QRPC) to

  • determine the reason for the delinquency and whether it is temporary or permanent in nature;
  • determine whether or not the borrower has the ability to repay the mortgage debt;
  • educate the borrower on the availability of workout options, as appropriate; and
  • obtain a commitment from the borrower to resolve the delinquency.

Additionally, the servicer must confirm that the borrower

  • has resolved the hardship,
  • is able to continue making the full monthly contractual payment, and
  • is unable to reinstate the mortgage loan or afford a repayment plan to cure the delinquency.

 

NOTE: If the mortgage loan was previously modified pursuant to a Fannie Mae Home Affordable Modification Program (HAMP) modification under which the borrower remains in “good standing,” and the borrower was on a COVID-19 related forbearance plan immediately preceding the COVID-19 payment deferral or had a COVID-19 related hardship immediately preceding the COVID-19 payment deferral, then the borrower will remain eligible to receive any future HAMP “pay for performance” incentives upon acceptance of the COVID-19 payment deferral.

the mortgage loan must be a conventional first lien mortgage loan, and may be a fixed-rate, a step-rate, or an ARM.

NOTE: The property securing the mortgage loan may be vacant or condemned.

The mortgage loan must

  • have been current or less than two months delinquent as of Mar. 1, 2020 the effective date of the National Emergency declaration related to COVID-19; and
  • be equal to or greater than one-month delinquent but less than or equal to 12 months delinquent as of the date of evaluation.

 

NOTE: If a borrower’s hardship is related to COVID-19 but he or she was two or more months delinquent as of the effective date of the National Emergency declaration, and the servicer determines the borrower can maintain his or her full monthly contractual payment, then the servicer must submit a request for a COVID-19 payment deferral through Fannie Mae’s servicing solutions system for review and obtain prior approval from Fannie Mae.

 

NOTE: If a mortgage loan was originated after Mar. 1, 2020, the effective date of the National Emergency Declaration related to COVID-19, and otherwise meets all criteria to receive a COVID-19 payment deferral, then the servicer must evaluate the borrower for a COVID-19 payment deferral and, if eligible, offer the COVID-19 payment deferral.

The mortgage loan must not have previously received a COVID-19 payment deferral.

 

NOTE: The mortgage loan may have previously received a non-COVID-19 payment deferral.

The mortgage loan must not be subject to

  • a recourse or indemnification arrangement under which Fannie Mae purchased or securitized the mortgage loan or that was imposed by Fannie Mae after the mortgage loan was purchased or securitized,
  • an approved liquidation workout option,
  • an active and performing repayment plan or other non-COVID-19 related forbearance plan,
  • a current offer for another retention workout option, or
  • an active and performing mortgage loan modification Trial Period Plan.

Determining eligibility for a COVID-19 payment deferral for a Texas Section 50(a)(6) loan

A Texas Section 50(a)(6) loan is eligible for a COVID-19 payment deferral if

  • the requirements described in Determining eligibility for a COVID-19 payment deferralare satisfied, and
  • the application of a COVID-19 payment deferral to the mortgage loan complies with applicable law.

If the servicer receives notice from the borrower that a COVID-19 payment deferral fails to comply with Texas Section 50(a)(6) requirements, the servicer must immediately, but no later than seven business days after receipt, take the actions listed as follows.

 

The servicer must…

Inform our Legal department by submitting a Non-Routine Litigation Form (Form 20) and include the borrower notice in its submission.

Collaborate with us on the appropriate response, including any cure that may be necessary, within the 60-day time frame provided by the requirements of Texas Section 50(a)(6).

Completing a COVID-19 payment deferral

The servicer must complete (i.e., submit the case via Fannie Mae’s servicing solutions system) a COVID-19 payment deferral in the same month in which it determines the borrower is eligible.

The servicer is authorized to use an additional month to allow for sufficient processing time (a “processing month”) to complete a COVID-19 payment deferral. The servicer must treat all borrowers equally in applying the processing month, as evidenced by a written policy.

 

NOTE: If the mortgage loan is 12 months delinquent as of the date of evaluation, the borrower must make his or her full monthly contractual payment during the processing month. In this circumstance, the servicer must complete the COVID-19 payment deferral within the processing month after receipt of the borrower’s full monthly contractual payment due during that month.

The servicer must send the COVID-19 payment deferral agreement, or equivalent, to the borrower no later than five days after the completion of the COVID-19 payment deferral.

While use of the COVID-19 payment deferral agreement is optional, it reflects the minimum level of information that the servicer must communicate and illustrates a level of specificity that complies with the requirements of the Servicing Guide. Also, the servicer must ensure the COVID-19 payment deferral agreement complies with applicable law.

 

NOTE: If the servicer determines the borrower’s signature is required on the COVID-19 payment deferral agreement, it must receive the executed agreement prior to completing the COVID-19 payment deferral.

The servicer’s application of a COVID-19 payment deferral to the mortgage loan must not impair our first lien position or enforceability against the borrower(s) in accordance with its terms.

The servicer must record the COVID-19 payment deferral agreement if the servicer determines that recordation is required to comply with law and ensure that the mortgage loan retains its first lien position. The servicer must obtain a title endorsement or similar title insurance product issued by a title insurance company if the COVID-19 payment deferral agreement will be recorded.

Soliciting the borrower for a post-forbearance COVID-19 payment deferral

If the servicer is unable to establish QRPC as described in Determining eligibility for a COVID-19 payment deferral with a borrower on a COVID-19 related forbearance plan and the borrower is otherwise eligible for a COVID-19 payment deferral, the servicer must send an offer for a COVID-19 payment deferral within 15 days after expiration of the forbearance plan.

The servicer must solicit the borrower using the Payment Deferral Post COVID-19 Forbearance Solicitation Cover Letter with the COVID-19 payment deferral agreement or the equivalent, making any appropriate changes to comply with applicable law.

While use of the Payment Deferral Post COVID-19 Forbearance Solicitation Cover Letter and COVID-19 payment deferral agreement is optional, it reflects the minimum level of information that the servicer must communicate and illustrates a level of specificity that complies with the requirements of the Servicing Guide.

The Payment Deferral Post COVID-19 Forbearance Solicitation Cover Letter must include language that additional forbearance may be available if the borrower’s hardship is not resolved, and that a mortgage loan modification may be available if the borrower needs payment relief.

The servicer must include instruction on how to accept the offer in the COVID-19 payment deferral agreement. The servicer is authorized to consider the following as acceptance by the borrower, subject to applicable law:

  • the borrower contacting the servicer directly in accordance with any acceptable outreach and communication method,
  • the borrower returning an executed COVID-19 payment deferral agreement, or
  • any other method evidencing the borrower’s acceptance as determined by the servicer.

For additional information related to Payment Deferrals, please read the Fannie Mae LL as noted.

 

FHA

FHA INFO #20-75

Updates to the Effective Date of Initial COVID-19 Forbearance Requests and Home Equity Conversion Mortgage (HECM) Extension Period

Today, the Federal Housing Administration (FHA) published Mortgagee Letter (ML) 2020-34, Update to the Date for Approving a COVID-19 Forbearance or COVID-19 Home Equity Conversion Mortgage (HECM) Extension. This ML extends the date from October 30, 2020 to December 31, 2020, for when a borrower may request an initial six-month COVID-19 forbearance or make the initial request for an extension to a HECM due and payable period. This guidance was first announced in ML 2020-06 on April 1, 2020.

FHA recognizes the continuing nature of the COVID-19 National Emergency and implemented the December 31, 2020, date to provide impacted borrowers with additional time to request a COVID-19 forbearance or HECM extension. The maximum timeframe for a COVID-19 Forbearance is still 12 months.

For further guidance, servicers should reference the COVID-19 Forbearance established in ML 2020-06 and ML 2020-22. Servicers are encouraged to read those MLs in their entirety as the requirements, aside from the revised deadlines, remain unchanged.

 

September 9, 2020

Fannie Mae

Fannie Mae Updates LL-2020-07: COVID-19 Payment Deferral

Updates Lender Letter 2020-07 with additional guidance regarding COVID-19 Payment Deferral

The following content was published May 13, 2020, Updated May 27, 2020, Jun. 10, 2020, Jul. 15, 2020, Aug. 27, 2020

Determining eligibility for a COVID-19 payment deferral UPDATED June 10, 2020

The servicer must not require a complete Borrower Response Package (BRP) to evaluate the borrower for a COVID-19 payment deferral if the eligibility criteria are satisfied.

In order to be eligible for a COVID-19 payment deferral, the following criteria must be met:

The borrower must

  • be on a COVID-19 related forbearance plan, or
  • have experienced a financial hardship resulting from COVID-19 (for example, unemployment, reduction in regular work hours, or illness of a borrower/co-borrower or dependent family member) that has impacted their ability to make their full monthly contractual payment.

NOTE: The servicer is not required to obtain documentation of the borrower’s hardship.

The servicer must achieve Quality Right Party Contact (QRPC) to

  • determine the reason for the delinquency and whether it is temporary or permanent in nature;
  • determine whether or not the borrower has the ability to repay the mortgage debt;
  • educate the borrower on the availability of workout options, as appropriate; and
  • obtain a commitment from the borrower to resolve the delinquency.

Additionally, the servicer must confirm that the borrower

  • has resolved the hardship,
  • is able to continue making the full monthly contractual payment, and
  • is unable to reinstate the mortgage loan or afford a repayment plan to cure the delinquency.

 

NOTE: If the mortgage loan was previously modified pursuant to a Fannie Mae Home Affordable Modification Program (HAMP) modification under which the borrower remains in “good standing,” then the mortgage loan will not lose good standing and the borrower will not lose any “pay for performance” incentives in the following circumstances:

 

  • the borrower was on a COVID-19 related forbearance plan immediately preceding the COVID-19 payment deferral, or
  • the borrower has a COVID-19 related hardship and the mortgage loan is less than three months delinquent.

 

For full details around the updates, please refer to LL 2020-07

Freddie Mac

Freddie Mac Announces Guide Bulletin 2020-34 (COVID-19 Foreclosure Moratorium Extension and Disaster Forbearance Updates)

This Bulletin announces an extension of the COVID-19 foreclosure moratorium and updates to Disaster forbearance for Eligible Disasters.

SUBJECT: COVID-19 FORECLOSURE MORATORIUM EXTENSION AND DISASTER FORBEARANCE UPDATES

This Bulletin announces:

  • An extension of the COVID-19 foreclosure moratorium
  • Updates to Disaster forbearance for Eligible Disasters

EFFECTIVE DATE

All of the changes announced in this Bulletin are effective immediately unless otherwise noted.

EXTENSION OF THE COVID-19 FORECLOSURE MORATORIUM

We are extending the foreclosure moratorium announced in Bulletins 2020-4, 2020-10, 2020-16 and 2020-25. Servicers must suspend all foreclosure actions, including foreclosure sales, through December 31, 2020. This includes initiation of any judicial or non-judicial foreclosure process, move for foreclosure judgment or order of sale. This foreclosure suspension does not apply to Mortgages on properties that have been determined to be vacant or abandoned.

DISASTER FORBEARANCE

In the event a disaster strikes, it is important that Servicers be considerate of the Borrower’s circumstances and work to obtain quality right party contact (QRPC) with the Borrower as soon as possible. However, we are aware that achieving timely QRPC is not always possible in disaster situations; therefore, in circumstances where the Servicer has not yet achieved QRPC and believes that the Borrower’s hardship is the result of an Eligible Disaster, the Servicer may place a Borrower who becomes 31 or more days delinquent after being impacted by an Eligible Disaster in a forbearance plan for up to 90 days. Servicers must obtain QRPC to approve forbearance for a Borrower who was 31 or more days delinquent at the time of impact due to an Eligible Disaster. We will update Guide Section 8404.4 in a future Bulletin to reflect this change.

 

FHA

FHA Announces Extension of Foreclosure and Eviction Moratorium in Connection with the Presidentially-Declared COVID-19 National Emergency

Announces an extension to the foreclosure and eviction moratorium originally issued in ML 2020-4, extended in ML 2020-13, and further extended in ML 2020-19 for borrowers with FHA-insured Single Family mortgages covered under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for an additional period through December 31, 2020.

Purpose

The purpose of this Mortgagee Letter (ML) is to inform mortgagees of an extension to the foreclosure and eviction moratorium originally issued in ML 2020-4, extended in ML 2020-13, and further extended in ML 2020-19 for borrowers with FHA-insured Single Family mortgages covered under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for an additional period through December 31, 2020.

Effective Date

The extension of the moratorium announced in this ML is effective immediately upon the expiration of the moratorium announced in ML 2020-19 for all FHA-insured mortgages except for FHA-insured mortgages secured by vacant or abandoned properties.

Moratorium on Foreclosures and Evictions and Extension of Deadlines

FHA-insured Single Family mortgages, excluding vacant or abandoned properties, are subject to an extension to the moratorium on foreclosure through December 31, 2020. The moratorium applies to the initiation of foreclosures and to foreclosures in process.

Separate from any eviction moratorium that was applicable to lessors under the CARES Act, evictions of persons from properties securing FHA-insured Single Family mortgages, excluding actions to evict occupants of legally vacant or abandoned properties, are also suspended through December 31, 2020.

Deadlines for the first legal action and reasonable diligence timelines are extended by 90 days from the date of expiration of this moratorium for FHA- insured Single Family mortgages, except for FHA-insured mortgages secured by vacant or abandoned properties.

 

VA

VA Extends Foreclosure Moratorium for Borrowers Affected by COVID-19

Extends foreclosure moratorium for borrowers with Federally backed mortgage loans who are experiencing financial hardship due to the COVID-19 national emergency.

Moratorium on Foreclosure. The CARES Act prohibited loan servicers from initiating any judicial or non-judicial foreclosure process for the 60-day period beginning March 18, 2020. Department of Veterans Affairs (VA) then extended the foreclosure moratorium through August 31, 2020. Per Executive Order 13945, Section 2, of August 8, 2020, it is the policy of the United States to minimize, to the greatest extent possible, residential evictions and foreclosures during the ongoing COVID–19 national emergency. In light of the ongoing COVID-19 national emergency and its impact on Veteran borrowers, properties secured by VA-guaranteed loans are subject to a moratorium on foreclosure through December 31, 2020. The moratorium applies to the initiation of foreclosures, and to the completion of foreclosures in process.

 

New Origination and Servicing Agency Updates to COVID-19 as of August 17, 2020

The StoneHill Group continually monitors the mortgage industry for changes that impact our clients. Here are the most recent Agency updates.

Origination Agency Updates Related to COVID-19

August 5, 2020

Freddie Mac

We continue to work closely with Fannie Mae under the guidance and direction of the FHFA to address the ongoing economic implications and uncertainty related to the coronavirus disease (COVID-19) pandemic and its impacts on Borrowers and the Mortgage origination process. This Bulletin provides updates regarding certain temporary COVID-19-related requirements and flexibilities announced in previous Bulletins, including:

Extension of temporary provisions from previously published Bulletins

In Bulletin 2020-23, we extended the effective date for some previously announced temporary requirements to Mortgages with Application Received Dates through July 31, 2020.

We are further extending the effective date for Mortgages with Application Received Dates through August 31, 2020 for the following:

Credit underwriting requirements and guidance announced in Bulletins 2020-5 and 2020-8,except that the requirement for verification of the self-employed Borrower’s business being open and operating is amended as stated below:

Self-employed Borrowers: verification the business is open and operating – updated

Effective immediately and remains in place for Mortgages with Application Received Dates on or before August 31, 2020.

In Bulletin 2020-8, we announced that Sellers must now take additional steps to confirm that the Borrower’s business is open and operating within 10 Business Days prior to the Note Date.

Effective immediately, we are updating this temporary requirement to permit the confirmation to take place within 20 Business Days prior to the Note Date to ease timing constraints related to closings. Sellers are encouraged to continue to make this confirmation as close to the Note Date as possible.

Extension of temporary flexibilities regarding Seller’s post-funding quality control requirements – targeted sampling through August 2020

In Bulletin 2020-11, we announced temporary flexibilities for Seller’s related to post-funding quality control reviews. The quality control flexibilities announced in Bulletin 2020-11 were effective immediately for all Mortgages currently in the process of a post-closing Seller in-house quality control review and were to remain in place for all Mortgages selected through June 2020 for post-closing Seller in-house quality control reviews. Bulletin 2020-23 extended this flexibility for Mortgages selected through July 2020.

These flexibilities will now remain in place for all Mortgages selected through August 2020 for post-closing Seller in-house quality control reviews.

We are also reminding Sellers of additional resources, including our Selling FAQs related to COVID-19, which were recently updated based on current guidance.

 Fannie Mae

Extension of temporary policies LL 2020-03

We are extending the temporary policies in this Lender Letter to loans with application dates on or before Aug. 31, 2020 from Jul. 31, 2020. Each applicable date has been updated in the remainder of this Lender Letter.

Requirements for borrowers using self-employment income to qualify

Effective: Lenders are encouraged to apply these requirements to existing loans in process; however, they must be applied to loans with application dates on or after Jun. 11, 2020 until further notice.

Requirements for borrowers using self-employment income to qualify

Effective: Lenders are encouraged to apply these requirements to existing loans in process; however, they must be applied to loans with application dates on or after Jun. 11, 2020 until further notice.

Income Analysis

Self-employment income is variable in nature and generally subject to changing market and economic conditions. Whether a business is impacted by an adverse event, such as COVID-19, and the extent to which business earnings are impacted can depend on the nature of the business or the demand for products or services offered by the business. Income from a business that has been negatively impacted by changing conditions is not necessarily ineligible for use in qualifying the borrower. However, the lender is required to determine if the borrower’s income is stable and has a reasonable expectation of continuance. Due to the pandemic’s continuing impact on businesses throughout the country, lenders are now required to obtain the following additional documentation to support the decision that the self-employment income meets our requirements:

    • an audited year-to-date profit and loss statement reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date; or
    • an unaudited year-to-date profit and loss statement signed by the borrower reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date, and two business depository account(s) statements no older than the latest two months represented on the year-to-date profit and loss statement
    • For example, the business depository account statements can be no older than Apr. and May for a year-to-date profit and loss statement dated through May 31, 2020.
    • The lender must review the two most recent depository account statements to support and/or not conflict with the information presented in the current year-to-date profit and loss statement. Otherwise, the lender must obtain additional statements or other documentation to support the information from the current year-to-date profit and loss statement.

NOTE: The year-to-date profit and loss statement must be no older than 60 days old as of the note date consistent with current Age of Documentation requirements below.

Lenders must review the profit and loss statement, and business depository accounts if required, and other relevant factors to determine the extent to which a business has been impacted by COVID-19. The lender can use the following guidance when performing the assessment of business operations and stability and must complete the business income assessment based on the minimum additional documentation above. In some instances, the lender may find it necessary to obtain supplemental documentation. See the full communication from Fannie LL2020-03.

Business Income Calculation Adjustment

When the lender determines current year net business income has been impacted by the COVID-19 pandemic and is

    • less than the historical monthly income calculated using Form 1084, but is stable at its current level, the lender must reduce the amount of qualifying income calculated using Form 1084 to no more than the current level of stable income as determined by the lender (see Business Income above).
    • more than the historical income calculated using Form 1084, the lender must use no more than the currently stable level of income calculated using Form 1084 to qualify the borrower.

In all cases, qualifying income must be supported by documentation, including any supplemental documentation obtained by the lender.

Business Assets

We are clarifying that proceeds from the Small Business Administration PPP or any other similar COVID-19 related loans or grants are not considered business assets. Refer to B3-4.2-02, Depository Accounts for details.

Temporary eligibility requirements for purchase and refinance transactions

Effective: Lenders may immediately apply these policies to loans in process and must apply them to loans with application dates on or after Jun. 2, 2020. These policies will be effective until further notice.

In response to lender feedback, we are addressing eligibility requirements for borrowers impacted by the COVID-19 pandemic. With this update we are providing eligibility guidelines for purchase and refinance transactions.

Lenders must continue to review the borrower’s credit report to determine the status of all mortgage loans. In addition to reviewing the credit report, the lender must also apply due diligence for each mortgage loan on which the borrower is obligated, including co-signed mortgage loans and mortgage loans not related to the subject transaction, to determine whether the payments are current as of the note date of the new transaction. For the purposes of these requirements, “current” means the borrower has made all mortgage payments due in the month prior to the note date of the new loan transaction by no later than the last business day of that month

Examples of acceptable additional due diligence methods to document the loan file include:

    • a loan payment history from the servicer or third-party verification service,
    • a payoff statement (for mortgages being refinanced),
    • the latest mortgage account statement from the borrower, and
    • a verification of mortgage.

A borrower who is not current and has missed payments on any mortgage loan is eligible for a new mortgage loan if those missed payments were resolved in accordance with the requirements in the table. See LL2020-03 for the complete information contained within the table relating to this topic.

We are not considering payments missed during the time of a COVID-19-related forbearance that have been resolved to be historical delinquencies for purposes of our excessive mortgage delinquency policy as outlined in B3-5.3-03, Previous Mortgage Payment History. This flexibility does not apply to high LTV refinance loans, which must continue to meet the payment history requirements in B5-7-02, High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan.

Unemployment benefits as qualifying income

We are reminding lenders of our current policy in the Selling Guide pertaining to the use of unemployment benefits. Per B3-3.1-09, Other Sources of Income, unemployment benefits cannot be used to qualify a borrower unless they are clearly associated with seasonal employment that is reported on the borrower’s signed federal income tax returns. We recognize that many unemployed and furloughed individuals are eligible for unemployment benefits under the CARES Act; however, unemployment compensation is short-term in nature and is therefore not a reliable and predictable source of income for borrowers who are not established seasonal workers.

Furloughed borrowers

The COVID-19 pandemic has resulted in an increase in furloughed employees. A furlough is a suspension from active employment that does not typically guarantee restoration of an employee’s position when the furlough period ends. Until furloughed employees actually return to work, they are unable to provide evidence of a stable and reliable flow of employment-related income and are therefore ineligible under our Temporary Leave Income policy in B3-3.1-09, Other Sources of Income.

Employment validation by the DU validation service

Effective: For new Desktop Underwriter® (DU®) loan casefiles created on or after May 4, 2020 and through Aug. 31, 2020.

To support sustainable homeownership while ensuring prudent risk management during these times of unprecedented unemployment, we are temporarily suspending representation and warranty relief for employment validation within the Desktop Underwriter® (DU®) validation service. Lenders must perform a verbal verification of employment in accordance with B3-3.1-07, Verbal Verification of Employment or follow the temporary policies outlined below.

While representation and warranty relief for employment validation is temporarily suspended, lenders will still be able to take advantage of the income and asset validation services with representation and warranty relief. Income validation for a borrower remains dependent on the borrower being employed. Lenders should continue to verify the employment of the borrower as close to closing as possible. When income or assets are validated, lenders should continue to follow the close-by dates and instructions issued in DU messages. If the lender discovers that the borrower is no longer employed, the associated income can no longer be considered in the qualification of the borrower, and the employment and associated income information should be removed from the Form 1003 and the casefile should be resubmitted to DU.

Refer to the DU Validation Service Release Notes published on May 1, 2020 and Apr. 9, 2020 for additional information.

Age of documentation

Lenders are encouraged to apply these updates to existing loans in process; however, they must be applied to loans with application dates on or after Apr. 14, 2020 through Aug. 31, 2020.

In order to ensure that the most up-to-date information is being considered to support the borrower’s ability to repay, we are updating our age of documentation requirements for all loans (existing and new construction) as follows:

    • We are modifying age of document requirements from four months (120 days) to two months (60 days) for most income and asset documentation. If an asset account is reported on a quarterly basis, the lender must obtain the most recently issued quarterly statement.
    • When the lender receives employment and income verification directly from a third-party employment verification vendor, we are now requiring that the information in the vendor’s database be no more than 60 days old as of the note date.
    • There are no changes to the age of documentation requirements for military income documented using a Leave and Earnings Statement, Social Security, retirement income, long-term disability, mortgage credit certificates, public assistance, foster care, or royalty payments, and the lender can continue to apply standard age of document requirements as stated in the Selling Guide.

The following requirement may be applied to loans with application dates through July 31, 2020 (even though the tax filing extension expires July 15). This temporary flexibility no longer applies to loans with application dates on or after August 1, 2020.

  • Due to the federal income tax filing extension granted through Jul. 15, 2020, we are eliminating the following documentation requirements. These normally apply for income types that require copies of federal income tax returns when the borrower files an extension with the IRS:
  • a copy of the IRS Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Tax Return), and
  • IRS Form 4506-T (Request for Transcript of Tax Return) transcript confirming “No Transcript Available” for the 2019 tax year.

All other requirements contained in B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns, continue to apply.

Conversion of construction-to-permanent financing – single-closing transactions

The Selling Guide currently allows certain single-closing construction-to-permanent transactions with credit documents dated more than 4 months but no more than 18 months at the time of conversion to permanent financing when certain conditions are met. (See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions). Among those conditions is a requirement that the credit documents are dated within 120 days of the original closing.

Consistent with the age of credit documentation requirements in this Lender Letter, this requirement is being updated to reflect that the income and asset documentation must be dated within 60 days of the original closing. All other conditions related to the age of credit documents contained in B5-3.1-02 continue to apply.

Verification of self-employment

Effective: Lenders are encouraged to apply these updates to existing loans in process; however, they must be applied to loans with application dates on or after Apr. 14, 2020 through Aug. 31, 2020.

When a borrower is using self-employment income to qualify, the lender must verify the existence of the borrower’s business within 120 calendar days prior to the note date. Due to latency in system updates or recertifications using annual licenses, certifications, or government systems of record, lenders must take additional steps to confirm that the borrower’s business is open and operating. The lender must confirm this within 20 business days of the note date (or after closing but prior to delivery).

Below are examples of methods the lender may use to confirm the borrower’s business is currently operating:

    • evidence of current work (executed contracts or signed invoices that indicate the business is operating on the day the lender verifies self-employment);
    • evidence of current business receipts within 20 days of the note date (payment for services performed);
    • lender certification the business is open and operating (lender confirmed through a phone call or other means); or
    • business website demonstrating activity supporting current business operations (timely appointments for estimates or service can be scheduled).

See B3-3.1-07, Verbal Verification of Employment for our existing requirements.

Market-based assets

Effective: Lenders are encouraged to apply these updates to existing loans in process; however, they must be applied to loans with application dates on or after Apr. 14, 2020 through Aug. 31, 2020.

Stocks, stock options, and mutual funds

In light of current market volatility, we are making the following updates when the borrower is using stocks, stock options, or mutual funds for assets:

    • When used for down payment or closing costs, evidence of the borrower’s actual receipt of funds realized from the sale or liquidation must be documented in all cases.
    • When used for reserves, only 70% of the value of the asset must be considered, and liquidation is not required.

See B3-4.3-01, Stocks, Stock Options, Bonds and Mutual Funds for our existing requirements.

Powers of attorney

These flexibilities are effective immediately for all loans in process and remain in place for loans with application dates on or before Aug. 31, 2020.

Selling Guide, B8-5-05, Requirements for Use of a Power of Attorney, contains our requirements for powers of attorney. For loans with application dates on or before Aug. 31, 2020, see LL2020-03 for additional requirements for using a power of attorney.

Verbal verification of employment

These temporary flexibilities are effective immediately for all loans in process and remain in place for loans with application dates on or before Aug. 31, 2020.

Many lenders are reporting difficulty in obtaining the verbal verification of employment (VOE) due to disruption to operations of the borrower’s employer. We expect lenders to attempt to obtain the verbal VOE in accordance with our existing requirements guidance. However, we will allow the following flexibilities:

    • Written VOE: 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. In addition, the lender may obtain the VOE after loan closing, up to the time of loan delivery (though we strongly encourage getting the verbal VOE before the note date).
    • Paystub: The lender may obtain a year-to-date paystub from the pay period that immediately precedes the note date.
    • Bank statements: The lender can provide bank statements (or other alternative documentation as permitted by B3-4.2-01, Verification of Deposits and Assets) evidencing the payroll deposit from the pay period that immediately precedes the note date.

Continuity of income

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.

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 our current Guide requirements (e.g., within 15 days instead of 120 days). 

Link to FAQ’s – https://singlefamily.fanniemae.com/media/document/pdf/faqs-covid-originations-policy

FHA

ML 2020-23: Updated Temporary Guidance for Verification of Self-Employment; Rental Income; 203(k) Rehabilitation Escrow Account (07/28/20).

Note: FHA issued an Update on July 30, 2020 to this announcement (ML 2020-24) updating the effective dates: “This ML supersedes ML 2020-23 announced in FHA INFO 20-53 on July 28, 2020. ML 2020-24 updates the effective date for the verification of business operations of self-employed borrowers and rental income guidance for case numbers assigned on or after August 12, 2020 through November 30, 2020”.

The effective date for the 203(k) rehabilitation escrow account has not changed and is still effective as of July 28, 2020. The revised ML is now available on the Mortgagee Letters web page

Purpose

The purpose of this Mortgagee Letter (ML) is to inform Mortgagees of Single Family’s modification of requirements in response to impacts from the Presidentially-Declared COVID-19 National Emergency including:

    • Modification to self-employment income requirements by issuing guidance for verification of business operations;
    • Modification to rental income requirements; and
    • Modification to the Approval of Extension Requests and Release of Funds under FHA 203(k) Rehabilitation Mortgage Insurance Program.

Effective Date – See Updated Announcement reflected above:

The verification of business operations for self-employed borrowers and Rental Income guidance in this ML is effective for cases with Note Dates on or after July 28, 2020 through November 30, 2020.

The administration of the 203(k) Rehabilitation Escrow guidance for borrowers in forbearance in this ML is effective immediately for open escrow accounts through November 30, 2020.

Policy updates in this ML are temporary and will not be incorporated into the HUD Single-Family Housing Policy Handbook 4000.1.

Verification of Self-Employment for Forward Mortgage and HECM

When self-employment income is used to qualify the Borrower, the Mortgagee must verify and document that the income derived from self employment is stable with a reasonable expectation that it will continue.

Due to the continued impact of the COVID-19 National Emergency on economic conditions and businesses throughout the country, in addition to the requirements in SF Handbook 4000.1 Sections II.A.4.c.x(C) and II.A.5.b.x(C) Self-Employment Income – Required Documentation (TOTAL and Manual) and Section 3.26 of the HECM Financial Assessment and Property Charge Guide, the Mortgagee must verify the existence of the borrower’s business within 10 calendar days prior to the date of the Note to confirm that the Borrower’s business is open and operating.

The Mortgagee must obtain one of the following to verify and confirm that the business is open and operating:

    • evidence of current work (executed contracts or signed invoices that indicate the business is operating on the day the lender verifies self employment);
    • evidence of current business receipts within 10 days of the note date (payment for services performed);
    • lender certification that the business is open and operating (lender confirmed through a phone call or other means) business website demonstrating activity supporting current business operations

Rental Income

In addition to the requirements in SF Handbook 4000.1 Sections II.A.4.c.xii(I) and II.A.5.b.xii(I) Rental Income (TOTAL and Manual) and Section 3.50 through Section 3.55 of the HECM Financial Assessment and Property Charge Guide where a borrower is qualifying utilizing rental income, for each property generating rental income the Mortgagee must either:

    • Reduce the effective income associated with the calculation of rental income by 25%, or
    • Verify 6 months PITI reserves (this option is applicable to Forward only), or
    • if the borrower has received the previous 2 months rental payments as evidenced by borrower’s bank statements showing the deposit. (This option is applicable only for borrowers with a history of rental income from the property).

203(k) Rehabilitation Escrow Account

SF Handbook 4000.1, II.A.8.a.xvii(B) Extension Requests, states that if the work is not completed within the rehabilitation period specified in the Rehabilitation Loan Agreement, the Borrower may request an extension of time and must submit adequate documentation to justify the extension. The Mortgagee may grant an extension at its discretion only if the Mortgage Payments are current. Additionally SF Handbook 4000.1, II.A.8.a.xx Servicing, states that if the mortgage is delinquent, the Mortgagee may refuse to make further releases from the rehabilitation escrow account and that the project must stop if the Mortgage is in payment default.

FHA is providing a temporary flexibility allowing Mortgagees to continue administering the Rehabilitation Escrow Account, including the approval of extension requests and release of funds, which will allow the project to continue for mortgages where the Borrower is in forbearance due to the impacts of COVID-19.

The Mortgagee is still required to obtain:

    • An explanation for the delay from the Borrower, contractor, or Consultant when reviewing extension requests; and
    • A new estimated completion date.

ML 2020-20: Re-Extension of the Effective Date of Mortgagee Letter 2020-05, Re-verification of Employment and Exterior-Only and Desktop-Only Appraisal Scope of Work Options for FHA Single Family Programs Impacted By COVID-19

 Effective Date

The re-extension of Appraisal guidance in Mortgagee Letter 2020-05 is effective immediately for appraisal inspections completed on or before August 31, 2020. The extension of re-verification of employment guidance in Mortgagee Letter 2020-05 is effective immediately for cases closed on or before August 31, 2020.

Policy updates in this ML are temporary and will not be incorporated into the HUD Single-Family Housing Policy Handbook 4000.1.

Summary of Changes: 

Re-verification of Employment Forward

FHA is allowing flexibilities related to the Mortgagee’s process of completing re-verification of employment, which includes verbal verification of employment. This is applicable for all FHA Title II forward and reverse mortgage programs, where re-verification of employment is required.

Mortgagees do not need to provide a re-verification of employment within 10 days of the Note date as described in Handbook 4000.1, Sections II.A.4.c.ii(C)(1)-(2) and II.A.5.b.ii(C)(1)-(2) Traditional and Alternative Current Employment Documentations, provided that the Mortgagee is not aware of any loss of employment by the borrower and has obtained:

    • For forward purchase transactions, evidence the Borrower has a minimum of 2 months of Principal, Interest, Taxes and Insurance (PITI) in reserves; and
    • A year-to-date paystub or direct electronic verification of income for the pay period that immediately precedes the Note date, or
    • A bank statement showing direct deposit from the Borrower’s employment for the pay period that immediately precedes the Note date.

Re-verification of Employment HECM

Mortgagees do not need to provide a re-verification of employment within 10 days of disbursement as described in Section 3.8 and 3.9 of the HECM Financial Assessment and Property Charge Guide, provided that the Mortgagee is not aware of any loss of employment by the borrower and has obtained:

    • A year-to-date paystub or direct electronic verification of income for the pay period that immediately precedes the Note date, or
    • A bank statement showing direct deposit from the Borrower’s employment for the pay period that immediately precedes the Note date

HUD Single Family Housing Appraisal Policy

When applicable, as described below, the appraiser may amend the scope of work to perform an Exterior-Only (viewing from the street) or Desktop-Only. The Appraiser may rely on supplemental information from other reliable sources such as Multiple Listing Service (MLS), and Tax Assessor’s Property Record to prepare an appraisal report. The Appraiser may rely on information from an interested party to the transaction (borrower, real estate agent, property contact, etc.) with clear appraisal report disclosure when additional verification is not feasible. The appraisal report must contain adequate information to enable the intended users to understand the extent of the inspection that was performed.

The Exterior-Only and Desktop-Only Appraisal options must continue to be reported on the current FHA approved appraisal forms with amended certifications and scope of work disclosures.

Exterior-Only Option

The required protocols and exhibits under the Exterior-Only Option are:

    • Appraiser will observe the Property and Improvements from the street.
    • The Appraisal will be completed “AS IS” unless Minimum Property Requirements (MPR) related deficiencies are observed from the street or otherwise known.
    • The Appraiser may utilize extraordinary assumptions when necessary.
    • No sketch, interior photos or rear exterior photographs are required.

Desktop-Only Option

The required protocols and exhibits under the Desktop-Only Option are:

    • Appraiser will not physically observe the Property and Improvements.
    • The Appraisal will be completed “AS IS” unless MPR related deficiencies are known.
    • The Appraiser may utilize extraordinary assumptions when necessary.
    • No sketch, interior photos, exterior photographs are required.
    • No comparable viewing nor photos are required.

FHA Purchase Transactions

FHA will accept appraisals for both forward and HECM for Purchase transactions with an optional Exterior-Only or Desktop-Only scope of work by the Appraiser. These flexibilities are not permitted on New Construction, Construction to Permanent, Building on Own Lands and 203(k) purchases.

FHA Refinance and Traditional HECM

FHA will accept appraisals for Traditional HECM, HECM-to-HECM Refinance, Rate and Term Refinance, and Simple Refinance with an optional Exterior-Only scope of work by the Appraiser. These flexibilities are not permitted on Cash out Refinances and 203(k) refinances.

Form 1004D Part B Completion Report

When an Appraisal Update and/or Completion Report (Form 1004D) Part B is required to evidence the completion of required repairs, FHA will permit a letter signed by the borrower affirming that the work was completed with further evidence of completion, which may include photographs of the completed work, paid invoices indicating completion, occupancy permits, or other substantially similar documentation. All completion documentation must be retained in the case binder. These flexibilities are not permitted on New Construction, Construction to Permanent, Building on Own Lands, and 203(k) transactions.

Servicing Agency Updates Related to COVID-19

August 17, 2020

Fannie Mae

LL-2020-06: Selling Loans in Forbearance Due to COVID-19 (04/22/20 Updated 07/31/20)

Overview

In accordance with long standing policy, mortgage loans must be current at time of sale to us. Loans that have been placed into forbearance prior to sale are not considered current and are currently ineligible.

Due to the unprecedented and swift nature of the COVID-19 pandemic and its impact on the nation’s employment, we are providing liquidity options for certain loans that have been placed into forbearance after loan closing but prior to loan sale. We will temporarily be purchasing (or securitizing) loans that are in forbearance that would otherwise be ineligible based on our current policies.

Our focus is to provide liquidity to the market, while also managing credit risk. As a result, we will review the volume of loans sold to us under these temporary provisions and may adjust our requirements as necessary.

Please read LL2020-06 updated July 31, 2019 for complete details.

LL-2020-07: COVID-19 Payment Deferral (05/13/20 Updated 07/15/20)

The servicer must not require a complete Borrower Response Package (BRP) to evaluate the borrower for a COVID-19 payment deferral if the eligibility criteria are satisfied.

In order to be eligible for a COVID-19 payment deferral, the following criteria must be met.

The borrower must

  • be on a COVID-19 related forbearance plan, or
  • have experienced a financial hardship resulting from COVID-19 (for example, unemployment, reduction in regular work hours, or illness of a borrower/co-borrower or dependent family member) that has impacted their ability to make their full monthly contractual payment. The servicer must achieve Quality Right Party Contact (QRPC) to
  • NOTE: The servicer is not required to obtain documentation of the borrower’s hardship.
  • determine the reason for the delinquency and whether it is temporary or permanent in nature;
  • determine whether or not the borrower has the ability to repay the mortgage debt;
  • educate the borrower on the availability of workout options, as appropriate; and
  • obtain a commitment from the borrower to resolve the delinquency.
  • Additionally, the servicer must confirm that the borrower
  • has resolved the hardship,
  • is able to continue making the full monthly contractual payment, and
  • is unable to reinstate the mortgage loan or afford a repayment plan to cure the delinquency.
  • NOTE: If the mortgage loan was previously modified pursuant to a Fannie Mae Home Affordable Modification Program (HAMP) modification under which the borrower remains in “good standing,” then the mortgage loan will not lose good standing and the borrower will not lose any “pay for performance” incentives in the following circumstances:
  • the borrower was on a COVID-19 related forbearance plan immediately preceding the COVID-19 payment deferral, or
  • the borrower has a COVID-19 related hardship and the mortgage loan is less than three months delinquent.
  • The mortgage loan must be a conventional first lien mortgage loan, and may be a fixed-rate, a step-rate, or an ARM.The mortgage loan must
  • NOTE: The property securing the mortgage loan may be vacant or condemned.
  • have been current or less than two months delinquent as of Mar. 1, 2020, the effective date of the National Emergency declaration related to COVID-19; and
  • be equal to or greater than one month delinquent but less than or equal to 12 months delinquent as of the date of evaluation.The mortgage loan must not have previously received a COVID-19 payment deferral. The mortgage loan must not be subject to
  • NOTE: The mortgage loan may have previously received a non-COVID-19 payment deferral.
  • NOTE: If a borrower’s hardship is related to COVID-19 but he or she two or more months delinquent as of the effective date of the National Emergency declaration, and the servicer determines the borrower can maintain his or her full monthly contractual payment, then the servicer must submit a request for a COVID-19 payment deferral through Fannie Mae’s servicing solutions system for review and obtain prior approval from Fannie Mae.
  • a recourse or indemnification arrangement under which Fannie Mae purchased or securitized the mortgage loan or that was imposed by Fannie Mae after the mortgage loan was purchased or securitized,
  • an approved liquidation workout option,
  • an active and performing repayment plan or other non-COVID-19 related forbearance plan,
  • a current offer for another retention workout option, or
  • an active and performing mortgage loan modification Trial Period Plan.

 Determining eligibility for a COVID-19 payment deferral for a Texas Section 50(a)(6) loan

A Texas Section 50(a)(6) loan is eligible for a COVID-19 payment deferral if

  • the requirements described in Determining eligibility for a COVID-19 payment deferral are satisfied, and
  • the application of a COVID-19 payment deferral to the mortgage loan complies with applicable law.

 July 31, 2020

Freddie Mac

Bulletin 2020-30: Extension of Temporary Requirements for Purchase of Mortgages in Forbearance

Click here for a printable PDF version.

Under the guidance and direction of the FHFA and in alignment with Fannie Mae, we are extending the temporary requirements for purchase of Mortgages in forbearance announced in Bulletin 2020-12 and subsequently extended in Bulletins 2020-17 and 2020-23. These requirements are now effective for Mortgages with Note Dates on or after February 1, 2020 and on or before August 31, 2020, and Settlement Dates on or after May 1, 2020 and on or before October 31, 2020.

Freddie Mac Selling FAQs related to COVID-19

July 15, 2020

Performing an escrow analysis

If the servicer chooses to perform an escrow analysis, any escrow account shortage that is identified at the time of the COVID-19 payment deferral must not be included in the non-interest bearing balance, and the servicer is not required to fund any existing escrow account shortage. In addition, the servicer is not required to revoke any escrow deposit account waiver.

In the event the servicer identifies an escrow shortage as the result of an escrow analysis in connection with a COVID-19 payment deferral or as part of the next annual analysis, then the servicer must spread repayment of the escrow shortage amount in equal monthly payments over a term of up to 60 months, unless the borrower decides to pay the shortage up-front.

Determining the COVID-19 payment deferral terms

The servicer must defer the following amounts as a non-interest bearing balance, due and payable at maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB:

  • up to 12 months of past-due principal and interest (P&I) payments;
  • out-of-pocket escrow advances paid to third parties; and
  • servicing advances paid to third parties in the ordinary course of business and not retained by the servicer, if allowed by state law.

All other terms of the mortgage loan must remain unchanged.

Any existing non-interest-bearing balance amount on the mortgage loan remains due and payable at maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB.

Please see the Lender Letter 2020-07 for complete details.

 July 8, 2020

FHA

ML 2020-22: FHA’s COVID-19 Loss Mitigation Options

Effective Date

Mortgagees must offer eligible borrowers the COVID-19 Loss Mitigation Options and procedures set forth in this ML no later than 90 days from the date of this Mortgagee Letter but may begin offering the new options immediately.

The new Single Family Default Monitoring System (SFDMS) Delinquency and Default Reason (DDR) Code 055 – Related to National Emergency Declaration must be used to report delinquencies as a result of impacts of the COVID-19 pandemic effective immediately or no later than the July 2020 reporting cycle. That data is due to HUD no later than August 7, 2020, which is the fifth business day of August 2020. All mortgagees that are unable to report DDR Code 055 – Related to National Emergency Declaration prior to the July 2020 reporting cycle must report DDR Code 010 – Neighborhood Problem until they can begin reporting DDR Code 055.

The use of the new SFDMS Delinquency/Default Status (DDS) Code 053 – Combination Partial Claim/Modification Started (Non-FHA-HAMP) will be effective for the July 2020 reporting cycle. That data is due to HUD no later than August 7, 2020, which is the fifth business day of August 2020.

Upon Borrower request, Mortgagees must offer a COVID-19 Forbearance to any Borrower that experiences an adverse impact on their ability to make on-time Mortgage Payments due to the COVID-19 pandemic, regardless of Default status.

To be eligible for the COVID-19 Loss Mitigation Home Retention and Disposition Options, the Borrower must have been current or less than 30 Days past due as of March 1, 2020 and satisfy the criteria set forth in this section.

COVID-19 Loss Mitigation Options are not incentivized for Mortgagees.

If a Borrower is experiencing a financial hardship negatively impacting their ability to make on-time Mortgage Payments due to COVID-19 and makes a request for a COVID-19 Forbearance, the Mortgagee must offer the Borrower a COVID-19 Forbearance.

The COVID-19 Forbearance allows for one or more periods of reduced or suspended payments without specific terms of repayment.

All FHA-insured Borrowers are eligible for a COVID-19 Forbearance, regardless of the delinquency status of the Mortgage.

The Mortgagee may utilize any available method for communicating with a Borrower regarding a COVID-19 Forbearance to meet these requirements. Acceptable methods of communication regarding a COVID-19 Forbearance include, but are not limited to, emails, text messages, fax, teleconferencing, websites, web portals, etc. If a Mortgagee sends out a general communication advising that a COVID-19 Forbearance is available, the Borrower may reply to that communication requesting a COVID-19 Forbearance, via email, phone call, or any other method of communication clearly made available to the Borrower by the Mortgagee.

The initial COVID-19 Forbearance period may be up to six months. If needed, an additional COVID-19 Forbearance period of up to six months may be requested by the Borrower and must be approved by the Mortgagee.

The term of the initial or extended COVID-19 Forbearance may be shortened at the Borrower’s request.

The Mortgagee must waive all Late Charges, fees, and penalties, if any, as long as the Borrower is on a COVID-19 Forbearance Plan.

Mortgagees must complete a Loss Mitigation Option for eligible Borrowers no later than 90 days from the earlier of the date of completion or expiration of the COVID-19 Forbearance. For Home Disposition Options, a signed Approval to Participate (ATP) Agreement or a signed DIL Agreement will meet this requirement.

Owner-Occupant Borrowers who were current or less than 30 Days past due as of March 1, 2020 must be reviewed for the COVID-19 Standalone Partial Claim, the COVID-19 Owner-Occupant Loan Modification, the COVID-19 Combination Partial Claim and Loan Modification, or the COVID-19 FHA-HAMP Combination Loan Modification and Partial Claim with Reduced Documentation.

Non-Occupant Borrowers who were current or less than 30 Days past due as of March 1, 2020 must be reviewed for the COVID-19 Non-Occupant Loan Modification.

Extension of First Legal Deadline Date For Borrowers participating in the COVID-19 Forbearance, Mortgagees are granted an automatic 90-Day extension to the first legal deadline date, from the earlier of the date of completion or expiration of the COVID-19 Forbearance period, to complete a Loss Mitigation Option, or to commence or re-commence foreclosure. Mortgagees must report the appropriate loss mitigation action in SFDMS. 

See ML 2020-22 for complete details

FHA INFO #20-48 

Loss Mitigation Options for Borrowers: 

This ML announces an expansion of loss mitigation options that are available to assist single family borrowers with FHA-insured forward mortgages impacted by the COVID-19 National Emergency. In addition, this ML updates the guidance for forward mortgages detailed in ML 2020-06. Read today’s Press Release. 

Servicers must begin offering these loss mitigation options to eligible borrowers immediately, but no later than 90 days from the date in ML 2020-22. Additionally, any COVID-19-related delinquencies in the Single Family Default Monitoring System (SFDMS) must be reported by the July 2020 reporting cycle. Refer to the Single Family Default Monitoring System Codes Guide for more information. These policies will be incorporated in a forthcoming update to FHA’s Single Family Housing Policy Handbook 4000.1, Section III.A.3.d, Presidentially-Declared COVID-19 National Emergency.

 June 26, 2020

Fannie Mae

LL-2020-07: COVID-19 Payment Deferral (05/13/20 Updated 06/10/20)

Link to Recent Update

With Lender Letter LL-2020-05, Payment Deferral, we announced payment deferral, a new retention workout option jointly developed with Freddie Mac at the direction of the Federal Housing Finance Agency (FHFA). That workout option was created to assist borrowers who became delinquent due to a short-term hardship that has since been resolved.

In response to the COVID-19 pandemic and servicer feedback, we are introducing COVID-19 payment deferral, a new workout option specifically designed to help borrowers impacted by a hardship related to COVID-19 return their mortgage to a current status after up to 12 months of missed payments. Designed to be simple and efficient for both servicers and borrowers, this solution is for borrowers who have completed a COVID-19 related forbearance plan, or who have a confirmed but resolved COVID-19 financial hardship. COVID-19 payment deferral was jointly developed with Freddie Mac at the direction of FHFA.

While COVID-19 payment deferral is similar to the recently announced payment deferral, we have made several enhancements to assist borrowers who have a COVID-19 related hardship. Key differences include:

The borrower has experienced a financial hardship resulting from COVID-19 that impacted their ability to make their monthly mortgage loan payment, which has been resolved.

  • The mortgage loan must have been current or less than 31 days delinquent as of Mar. 1, 2020, the effective date of the National Emergency declaration related to COVID-19.
  • The mortgage loan must be 31 or more days delinquent but less than or equal to 360 days delinquent as of the date of evaluation.
  • Certain eligibility criteria are not applicable, such as time from mortgage loan origination and rolling delinquency parameters.
  • The servicer must defer the delinquent principal and interest payments (P&I) together with any allowable servicing advances paid to third parties as a result of the delinquency into the non-interest-bearing balance.

 Fannie Mae Updates LL-2020-05: Payment Deferral

Determining eligibility for a payment deferral

The servicer is authorized to evaluate the borrower for a payment deferral without receiving a complete Borrower Response Package (BRP). When the servicer offers a payment deferral without receiving a complete BRP, the servicer is not required to send an Evaluation Notice, or equivalent.

If the borrower submitted a complete BRP, then the servicer must evaluate the borrower in accordance with D2-2-05, Receiving a Borrower Response Package. The servicer is authorized to use an Evaluation Notice but must make the appropriate changes as necessary, including to the applicable Frequently Asked Questions, to reflect the terms of the payment deferral.

Determining the payment deferral terms

The servicer must defer the past-due principal and interest (P&I) payments as a non-interest bearing balance, due and payable at maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB. All other terms of the mortgage loan must remain unchanged.

Any existing non-interest-bearing balance on the mortgage loan remains due and payable at maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB.

NOTE: If the servicer chooses to perform an escrow analysis, any escrow account shortage that is identified at the time of the payment deferral must not be included in the non-interest bearing balance and the servicer is not required to fund any existing escrow account shortage. In addition, the servicer is not required to revoke any escrow deposit account waiver.

Completing a payment deferral

The servicer must complete (i.e., submit the case via Fannie Mae’s servicing solutions system) a payment deferral in the same month in which it determines the borrower is eligible.

The servicer is authorized to use an additional month to allow for sufficient processing time (“processing month”) to complete a payment deferral. In this circumstance

  • the borrower must make his or her full monthly contractual payment during the processing month, and
  • the servicer must complete the payment deferral within the processing month after receipt of the borrower’s full monthly contractual payment due during that month.

The servicer must send the payment deferral agreement, or equivalent, to the borrower no later than five days after the completion of the payment deferral.

While use of the payment deferral agreement is optional, it reflects the minimum level of information that the servicer must communicate and illustrates a level of specificity that complies with the requirements of the Servicing Guide. Also, the servicer must ensure the payment deferral agreement complies with applicable law. 

NOTE: If the servicer determines the borrower’s signature is required on the payment deferral agreement, it must receive the executed agreement prior to completing the payment deferral. 

The servicer’s application of a payment deferral to the mortgage loan must not impair our first lien position or enforceability against the borrower(s) in accordance with its terms.

The servicer must record the payment deferral agreement if the servicer determines that recordation is required to comply with law and ensure that the mortgage loan retains its first lien position. The servicer must obtain a title endorsement or similar title insurance product issued by a title insurance company if the payment deferral agreement will be recorded.

Processing a payment deferral for an MBS mortgage loan

The servicer must not make a manual reclassification request for mortgage loans subject to a payment deferral. In addition, MBS mortgage loans subject to a payment deferral will not be scheduled for automatic reclassification as described in A1-3-06, Automatic Reclassification of MBS Mortgage Loans.

June 10, 2020

Incentive fees

The servicer is eligible for a $500 incentive fee upon completion of a payment deferral. See Lender Letter LL-2020-09, Incentive Fees for Retention Workout Options for the new temporary structure for incentive fees for completed repayment plans, payment deferrals / COVID-19 payment deferrals, and Fannie Mae Flex Modification.

Servicing fees for a payment deferral

The servicer will continue to receive the servicing fee it was receiving prior to completing a payment deferral after a payment deferral becomes effective.

Requesting reimbursement for payment deferral expenses

The servicer must pay any actual out-of-pocket expenses in accordance with the Servicing Guide associated with the execution of a payment deferral, including, but not limited to:

  • required notary fees,
  • recording costs,
  • title costs, or
  • any other allowable and documented expense.

We will reimburse the servicer for allowable out-of-pocket expenses in accordance with F-1-05, Expense Reimbursement.

Fannie Mae’s workout hierarchy

The servicer must consider a reinstatement when the mortgage loan is delinquent and it has determined that the borrower has the ability to bring the mortgage loan current.

The servicer must see Chapter D2-3, Fannie Mae’s Home Retention and Liquidation Workout Options for the applicable workout option requirements. The following table provides guidance and the order of evaluation for available workout options for a conventional first lien mortgage loan. A complete BRP may not be required for each workout option.

Borrower Solicitation Letter (Form 745)

We have posted a Borrower Solicitation Letter (Form 745) with the payment deferral option incorporated for use upon your implementation of this workout option.

Reporting a Mortgage Loan Eligible for a Payment Deferral

Loan activity reporting must continue on a delinquent mortgage loan that is subject to a payment deferral. If the mortgage loan is in an MBS pool, then the servicer must not request a reclassification.

The final “pre-payment deferral” UPB and LPI values in Fannie Mae’s servicing solutions system must match the last reported UPB and LPI in Fannie Mae’s investor reporting system. If the values do not match, this will cause an exception in Fannie Mae’s servicing solutions system and the payment deferral case cannot close until this discrepancy is resolved.

In our investor reporting system, the servicer must report a payment LAR with the UPB and a delinquent LPI Date equal to or less than two months. This payment LAR must be reported in the evaluation month, or the processing month if applicable, at least one business day prior to the last day of the calendar month. Failure to do so will result in the payment deferral not being processed in Fannie Mae’s servicing solutions system.

The following table provides additional instructions based on what is processed in the current reporting month prior to acceptance of the payment deferral in Fannie Mae’s investor reporting system.

Reporting a Mortgage Loan After a Payment Deferral

A payment deferral creates a non-interest bearing balance (referred to in the Investor Reporting Manual as “principal forbearance”) amount due and payable at the maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB. The servicer must not calculate interest on the principal forbearance amount.

In the reporting month following the acceptance of a payment deferral, the servicer must report the mortgage loan’s

  • net UPB (gross UPB minus the principal portion of the payment deferral amount) in the “Actual UPB” field on the LAR if there is no LPI movement; or
  • amortized UPB based on the net UPB (gross UPB minus the principal portion of the payment deferral amount) in the “Actual UPB” field on the LAR if there is LPI movement.

 

Fannie Mae Updates LL-2020-02: Guidance Related to the Impact of COVID-19 on Servicing

Link to Recent Update

Additions to Lender Letter on Jun. 10, 2020

  • Sending a payment reminder notice: Clarifying that the servicer is authorized to not send a payment reminder notice to the borrower during an active forbearance plan term.

Lender Letter content published Mar. 18, 2020, updated Mar. 25, 2020, Apr. 8, 2020, May 14, 2020, Jun. 24, 2020

  • Forbearance plan terms: Expanding eligibility for a forbearance plan for borrowers impacted by COVID-19. UPDATED Apr. 8, 2020 in response to the CARES Act to clarify the servicers responsibilities related to providing a forbearance plan to a borrower impacted by COVID-19.
  • Evaluating the borrower for a payment deferral or mortgage loan modification after a forbearance plan: Clarifying the mortgage loan modifications that must be considered near the conclusion of a forbearance plan term. UPDATED Mar. 25, 2020 to require that a borrower be evaluated for payment deferral prior to these mortgage loan modifications. UPDATED Apr. 8, 2020 to eliminate the requirement that the servicer determine the occupancy status of the property when achieving QRPC and evaluating a borrower impacted by COVID-19 for a workout option prior to expiration of the forbearance plan. UPDATED May 14, 2020 to clarify the evaluation hierarchy with the introduction of COVID-19 payment deferral and to reflect the effective date of the National Emergency declaration related to COVID-19 in the eligibility criteria (rather than the declaration date of Mar. 13).
  • Credit bureau reporting: Clarifying that servicers must suspend credit reporting when the hardship is related to COVID-19. UPDATED Apr. 8, 2020 to require that the servicer comply with the requirements of the Fair Credit Reporting Act (“FCRA”), as amended by the CARES Act for borrowers affected by the COVID-19 pandemic.
  • Suspension of foreclosure activities and certain bankruptcy requirements: Instructing servicers to not allow any foreclosure sales within the next 60 days. UPDATED Apr. 8, 2020 to require that the servicer suspend foreclosure- related activities in accordance with the requirements of the CARES Act and suspend the requirement that servicers file motions for relief from the automatic stay in bankruptcy cases. UPDATED May 14, 2020 to extend the suspension of foreclosure-related activities and the requirement that servicers file motions for relief from the automatic stay in bankruptcy cases. UPDATED Jun. 24, 2020 to extend the suspension of foreclosure-related activities.
  • Sending a payment reminder notice 
  • Servicing Guide D2-2-03, Sending a Payment Reminder Notice requires the servicer to send a payment reminder notice to the borrower no later than the 17th day of delinquency if the payment has not been received. In response to servicer inquiries, we are clarifying that the servicer is authorized to not send a payment reminder notice to the borrower during an active forbearance plan term. This applies to active forbearance plans without regard to whether the borrower’s monthly payment is reduced or suspended during the forbearance plan term.

 June 6, 2020

Freddie Mac

Bulletin 2020-25: Servicing (06/24/20)

Click here for a printable PDF version.

TO: Freddie Mac Servicers

SUBJECT: TEMPORARY SERVICING GUIDANCE RELATED TO COVID-19 AND EDR CLARIFICATIONS FOR ALL HARDSHIP REASONS

Guide Bulletins 2020-4, 2020-7, 2020-10, 2020-15, 2020-16 and 2020-21 provided temporary Servicer guidance in response to the National Emergency Declaration resulting from the outbreak and spread of COVID-19. As we continue to monitor and assess the situation, and in response to Servicer questions, with this Bulletin we are announcing an extension to the COVID-19 foreclosure moratorium.

We are also providing the guidance regarding EDR requirements that apply to all eligible hardship reasons, including COVID-19 related hardships for:

  • EDR reporting of a Mortgage that is current – October 1, 2020
  • Required EDR reporting when sending a streamlined offer for a Freddie Mac Flex Modification®

EFFECTIVE DATE

All of the changes announced in this Bulletin are effective immediately unless otherwise noted.

EXTENSION OF THE COVID-19 FORECLOSURE MORATORIUM

We are extending the foreclosure moratorium announced in Bulletins 2020-4, 2020-10 and 2020-16. Servicers must suspend all foreclosure actions, including foreclosure sales, through August 31, 2020. This includes initiation of any judicial or non-judicial foreclosure process, move for foreclosure judgment or order of sale. This foreclosure suspension does not apply to Mortgages on properties that have been determined to be vacant or abandoned.

EDR

Current Mortgages

Effective October 1, 2020

In response to Servicer inquiries, we are clarifying that Guide Section 9102.7 requires Servicers to report all alternatives to foreclosures, which includes forbearance plans, via EDR, on all Mortgages, including those that are not delinquent. Additionally, we are updating our reporting requirements to require Servicers to include the reason for default when reporting a forbearance via EDR, regardless of delinquency status or length. These updated requirements apply to all Mortgages regardless of the reason for default.

Within the first three Business Days each month, Servicers must report all status and event codes for Mortgages that are on a forbearance plan in the prior month, including Mortgages that are not delinquent.

Servicers must include the following information when reporting a forbearance to Freddie Mac:

  • Default reason code (see Guide Exhibit 82, Electronic Default Reporting Transmission Code List)
  • Default action code: 09 (Forbearance)
  • Default action date – Servicers must report the Due Date of the first payment due under the forbearance plan. For Mortgages with Due Dates other than the first day of the month, Servicers must report the default action date as the first day of the month in which the payment is due.

Note: If the Servicer has previously reported Mortgages on forbearance plans that do not reflect the default action date as outlined above, the Servicer must update the default action date in their next EDR submission.

For example, the Servicer should report the following for a Borrower who is current on his/her June 2020 payment* and requests the Servicer on June 24, 2020 to be placed on a forbearance plan beginning with his/her July 1, 2020 payment due to COVID-19 related hardship:

  • Default reason code: 032 (National Emergency Declaration)
  • Default action code: 09 (Forbearance)
  • Default action date: 7/1/2020

*If the Borrower has not made his/her June 2020 payment, the Servicer would report 6/1/2020 as the default action date.

Servicers must continue to report this information each month until the forbearance plan has ended or until the Mortgage is current and no longer on a forbearance plan.

Servicers are encouraged to adopt these reporting requirements immediately but must do so no later than their October 2020 EDR submission, which reflects September 2020 activity.

We will update Section 9102.7 and Exhibit 82 in a future Bulletin.

ADDITIONAL RESOURCES

We encourage Servicers to review the following COVID-19 resources:

 May 27, 2020

Reporting a delinquency status code for a payment deferral

The servicer must report delinquency status information to us through our servicing solutions system in accordance with D2-4-01, Reporting a Delinquent Mortgage Loan to Fannie Mae.

Unlike Fannie Mae’s other workout options, payment deferral does not have a unique workout option delinquency status code. If no other delinquency status code is applicable to a mortgage loan subject to a payment deferral, the servicer must continue to report delinquency status code 42 – Delinquent, No Action until the payment deferral has been completed and the mortgage loan is brought current.

Reporting a payment deferral to Fannie Mae

The servicer must submit an eligible payment deferral case to our servicing solutions system by entering loan-level information, including the applicable campaign ID to identify a payment deferral. The case must be entered in the month of evaluation, after the borrower has made any required full monthly contractual payment.

If the servicer chooses to use a processing month, the servicer must submit the payment deferral case during the processing month after receipt of the full monthly contractual payment that is due for such month.

The servicer must remit and report to us via a Loan Activity Record (LAR) the borrower’s full monthly contractual payment due in the month of evaluation (or due in the processing month, if applicable) prior to completing a payment deferral in Fannie Mae’s servicing solutions system.

Processing a payment deferral for a mortgage loan with mortgage insurance

We have obtained delegation of authority on behalf of all servicers from the following mortgage insurers for payment deferral: Arch MI, Essent Guaranty, Genworth, MassHousing, MGIC, National Mortgage Insurance, Radian Guaranty, RMIC, and United Guaranty.

If we have not obtained delegation of authority from the mortgage insurer for any particular workout option, the servicer must obtain this delegation or seek mortgage insurer approval.

Handling fees and late charges in connection with a payment deferral

The servicer must not charge the borrower administrative fees. It must waive all late charges, penalties, stop payment fees, or similar charges upon completing a payment deferral.

 

 

 

New Agency Updates to COVID-19 as of June 26, 2020

The StoneHill Group continually monitors the mortgage industry for changes that impact our clients. Here are the most recent Agency updates.

June 26, 2020

Temporary Waiver of QC Requirements for Early Payment Defaults

Today, June 22, 2020, FHA issued a temporary waiver of its Single Family Housing Policy Handbook 4000.1 (SF Handbook) to temporarily suspend the requirement that mortgagees select and review all Early Payment Defaults (EPDs) on a monthly basis. An EPD refers to all mortgages that become 60-days delinquent within the first six payments.

As a result of the COVID-19 National Emergency, FHA has observed a significant increase in EPDs nationwide. Most are likely caused by loss of employment and/or income due to the public health emergency, and not the result of non-compliance with FHA Single Family origination and underwriting requirements. Therefore, FHA is providing mortgagees with flexibility by temporarily waiving its requirements found in SF Handbook, Sections V.A.3.a.i(C) and V.A.3.a.iv(B)(2).

With this waiver, mortgagees are not required to conduct quality control (QC) reviews of EPDs that would have been selected as part of a mortgagee’s May, June, or July 2020 QC selections. Mortgagees must continue to meet all other loan-level QC requirements in SF Handbook, Section V.A.3. For example, mortgagees must select FHA-insured loans for review via random and discretionary sampling methods that meet the conditions described in Section V.A.3.a.iv. These random and discretionary samples may include EPDs.

View the temporary waiver of QC requirements for Early Payment Defaults on the Waivers page at: https://www.hud.gov/program_offices/administration/hudclips/waivers/

 

Temporary Partial Waiver of QC Requirements for Field Review Appraisals

Today, FHA issued a temporary partial waiver of its Single Family Housing Policy Handbook 4000.1 (SF Handbook) to provide mortgagees with flexibility related to quality control (QC) field reviews of appraisals.

Considering the social distancing requirements in place in many areas of the country, mortgagees may be unable to conduct targeted field reviews of appraisals on 10 percent of FHA-insured mortgages selected for the monthly post-closing QC sample. Therefore, FHA is providing mortgagees with flexibility by temporarily waiving part of its requirements found in SF Handbook, Section V.A.3.c.ii(C)(1)(b).

With this waiver, mortgagees are permitted to use third-party tools as an alternative to field reviews of appraisals. Mortgagees must continue to meet all other appraisal QC requirements in SF Handbook, Section V.A.3.c.ii(C). For example, mortgagees must conduct desk reviews of appraisals following the standards described in Section V.A.3.c.ii(C)(1)(a).

This temporary partial waiver applies to QC reviews currently in process and for cases selected as part of a mortgagee’s May, June, or July 2020 QC selections.

View the temporary partial waiver of QC requirements for field reviews of appraisals on the Waivers page at: https://www.hud.gov/program_offices/administration/hudclips/waivers/

 

New Agency Updates to COVID-19 as of June 8, 2020

Fannie Mae

Requirements for borrowers using self-employment income to qualify

Effective: Lenders are encouraged to apply these requirements to existing loans in process; however, they must be applied to loans with application dates on or after Jun. 11, 2020 until further notice.

Link to Recent Update

Income Analysis

Self-employment income is variable in nature and generally subject to changing market and economic conditions. Whether a business is impacted by an adverse event, such as COVID-19, and the extent to which business earnings are impacted can depend on the nature of the business or the demand for products or services offered by the business. Income from a business that has been negatively impacted by changing conditions is not necessarily ineligible for use in qualifying the borrower. However, the lender is required to determine if the borrower’s income is stable and has a reasonable expectation of continuance. Due to the pandemic’s continuing impact on businesses throughout the country, lenders are now required to obtain the following additional documentation to support the decision that the self-employment income meets our requirements:

 

  • an audited year-to-date profit and loss statement reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date; or
  • an unaudited year-to-date profit and loss statement signed by the borrower reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date, and two business depository account(s) statements no older than the latest two months represented on the year-to-date profit and loss statement.
    • For example, the business depository account statements can be no older than Apr. and May for a year-to-date profit and loss statement dated through May 31, 2020.
    • The lender must review the two most recent depository account statements to support and/or not conflict with the information presented in the current year-to-date profit and loss statement. Otherwise, the lender must obtain additional statements or other documentation to support the information from the current year-to-date profit and loss statement.

NOTE: The year-to-date profit and loss statement must be no older than 60 days old as of the note date consistent with current Age of Documentation requirements below.

Lenders must review the profit and loss statement, and business depository accounts if required, and other relevant factors to determine the extent to which a business has been impacted by COVID-19. The lender can use the following guidance when performing the assessment of business operations and stability and must complete the business income assessment based on the minimum additional documentation above.

Business Income Calculation Adjustment

When the lender determines current year net business income has been impacted by the COVID-19 pandemic and is:

  • less than the historical monthly income calculated using Form 1084, but is stable at its current level, the lender must reduce the amount of qualifying income calculated using Form 1084 to no more than the current level of stable income as determined by the lender (see Business Income above).
  • more than the historical income calculated using Form 1084, the lender must use no more than the currently stable level of income calculated using Form 1084 to qualify the borrower.

In all cases, qualifying income must be supported by documentation, including any supplemental documentation obtained by the lender.

Business Assets

We are clarifying that proceeds from the Small Business Administration PPP or any other similar COVID-19 related loans or grants are not considered business assets. Refer to B3-4.2-02, Depository Accounts for details.

Temporary eligibility requirements for purchase and refinance transactions

Effective: Lenders may immediately apply these policies to loans in process and must apply them to loans with application dates on or after Jun. 2, 2020. These policies will be effective until further notice.

In response to lender feedback, we are addressing eligibility requirements for borrowers impacted by the COVID-19 pandemic. With this update we are providing eligibility guidelines for purchase and refinance transactions.

Lenders must continue to review the borrower’s credit report to determine the status of all mortgage loans. In addition to reviewing the credit report, the lender must also apply due diligence for each mortgage loan on which the borrower is obligated, including co-signed mortgage loans and mortgage loans not related to the subject transaction, to determine whether the payments are current as of the note date of the new transaction. For the purposes of these requirements, “current” means the borrower has made all mortgage payments due in the month prior to the note date of the new loan transaction by no later than the last business day of that month. Examples of acceptable additional due diligence methods to document the loan file include:

  • a loan payment history from the servicer or third-party verification service,
  • a payoff statement (for mortgages being refinanced),
  • the latest mortgage account statement from the borrower, and
  • a verification of mortgage.

A borrower who is not current and has missed payments on any mortgage loan is eligible for a new mortgage loan if those missed payments were resolved. Please refer to the actual Lender Letter to review allowances.

We are not considering payments missed during the time of a COVID-19-related forbearance that have been resolved to be historical delinquencies for purposes of our excessive mortgage delinquency policy as outlined in B3-5.3-03, Previous Mortgage Payment History. This flexibility does not apply to high LTV refinance loans, which must continue to meet the payment history requirements in B5-7-02, High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan.

 

New Agency Updates Related to COVID-19

As a result of the COVID-19 pandemic, the agencies have issued temporary flexibilities around certain items. The Stonehill Group has compiled a list of these changes for your convenience. Please click on the link to review all COVID-19 Updates from the agencies.

FHA’s Loss Mitigation Options for Borrowers Affected by the Presidentially-Declared COVID-19 National Emergency

HUD is working to provide Mortgagees and Borrowers with additional Loss Mitigation Home Retention Options due to the COVID-19 National Emergency, clarify requirements around these options, and fully implement the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  

Learn More: FHA’s Loss Mitigation Options for Borrowers Affected by COVID-19 National Emergency

 

 

Banks Will Soon be Able to Postpone Some Appraisals Until 120 Days After a Mortgage Closes

As stated in the April 14, 2020 HousingWire Article; Citing the need to “extend financing to creditworthy households and businesses quickly in the wake of the national emergency declared in connection with COVID-19,” a trio of federal banking regulators announced Tuesday evening that banks will soon be able to delay getting an appraisal on a property for as many as 120 days after a mortgage closes.

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency announced the changes Tuesday, stating the rule change will be in effect until the end of this year.

Under the rule change, banks can postpone an appraisal on a residential or commercial property for 120 after the loan is closed.

It should be noted that the rule only applies to banks under the oversight of the Fed, FDIC and OCC.

More important, the rule change only applies to loans kept in banks’ portfolios.

Loans sold to or guaranteed by the Federal Housing Administration, Department of Housing and Urban DevelopmentDepartment of Veterans AffairsFannie Mae, or Freddie Mac will still require an appraisal before closing, per each agency’s or company’s rules.

Meanwhile, each of those agencies has relaxed their appraisal rules in recent weeks to address social distancing protocols or stay-at-home orders in various states and cities.

In each case, the agencies moved to allow exterior-only appraisals (known as drive-by appraisals) or in some cases, desktop appraisals, where the appraiser doesn’t inspect the property or comparable sales. Instead, the appraiser relies on public records, multiple listing service information, and other third-party data sources to identify the property characteristics.

But the newly announced rules from the banking regulators go several steps beyond that, stating that appraisals may be pushed to 120 days after the mortgage closes.

The rule change is not official yet, however. The rule goes into effect when it is entered into the Federal Register.

When the rule change goes into effect, the rule will apply to “residential and commercial real estate secured transactions, including loans for new money or refinancing transactions.”

However, the rule excludes “transactions for acquisition, development, and construction of real estate.”

In the interim final rule, which can be read here, the regulators note how the current environment is impacting the ability of certain people to buy a home or refinance if they want to or need to.

“Due to the impact of COVID-19, businesses and individuals have a heightened need for additional liquidity,” the regulators state in the rule.

“Being able to quickly access equity in real estate could help address this need. However, government restrictions on non-essential movement and health and safety advisories in response to the National Emergency declared in connection with COVID-19,1 including those relating to social distancing, have led to complications with respect to performing and completing real property appraisals and evaluations needed to comply with federal appraisal regulations,” they continue. “As a result, some borrowers may experience delays in obtaining funds needed to meet immediate and near-term financial needs.”

But the agencies state that the ability to delay an appraisal does not absolve the lender of needing to conduct prudent lending practices.

“Regulated institutions that defer receipt of an appraisal or evaluation are still expected to conduct their lending activity consistent with the underwriting principles in the agencies’ Standards for Safety and Soundness and Real Estate Lending Standards that focus on the ability of a borrower to repay a loan and other relevant laws and regulations,” the regulators state. “These deferrals are not an exercise of the agencies’ waiver authority, because appraisals and evaluations are being deferred, not waived.”

The regulators continue:

Under the interim final rule, regulated institutions may close a real estate loan without a contemporaneous appraisal or evaluation, subject to a requirement that institutions obtain the appraisal or evaluation, as would have been required under the appraisal regulations without the deferral, within a grace period of 120 days after closing of the transaction. While appraisals and evaluations can be deferred, the agencies expect institutions to use best efforts and available information to develop a well-informed estimate of the collateral value of the subject property.

For purposes of risk-weighting of residential mortgage exposures, an institution’s prudent underwriting estimation of the collateral value of the subject property will be considered to meet the agencies’ appraisal and evaluation requirements during the deferral period. In addition, the agencies continue to expect regulated institutions to adhere to internal underwriting standards for assessing borrowers’ creditworthiness and repayment capacity, and to develop procedures for estimating the collateral’s value for the purposes of extending or refinancing credit.

The agencies also note the potential for the value of the property in question to drop during the 120-day delay, and state that banks must be prepared for that scenario.

“The agencies also expect institutions to develop an appropriate risk mitigation strategy if the appraisal or evaluation ultimately reveals a market value significantly lower than the expected market value,” the agencies state. “An institution’s risk mitigation strategy should consider safety and soundness risk to the institution, balanced with mitigation of financial harm to COVID-19-affected borrowers.”

As stated earlier, the delayed appraisal option does not apply to “transactions for acquisition, development, and construction of real estate.” In the rule, the regulators state that those loans “present heightened risks not associated with financing existing real estate.”

Beyond that, the regulators also state that “repayment of those transactions is generally dependent on the completion or sale of the property being held as collateral as opposed to repayment generated by existing collateral or the borrower.”

Typically, a rule change like this would require a comment period after the rule’s initial proposal, followed by a 30-day delayed effective date to ensure all affected parties have time to prepare.

But in this case, the regulators state that they are bypassing those procedures in order to enact this rule as quickly as possible.

“The agencies believe that the public interest is best served by implementing the interim final rule as soon as possible. As discussed above, recent events have suddenly and significantly affected global economic activity, increasing businesses’ and households’ need to have timely access to liquidity from real estate equity,” the agencies state.

“In addition, the spread of COVID-19 has greatly increased the difficulty of performing real estate appraisals and evaluations in a timely manner,” the agencies continue. “This relief will allow regulated institutions to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of COVID19, while reaffirming the safety and soundness principle that valuation of collateral is an essential part of the lending decision. For these reasons, the agencies find that there is good cause consistent with the public interest to issue the rule without advance notice and comment.”

The regulators conclude the interim final rule by stating that they believe the change will help ensure credit goes to deserving borrowers and protect all involved.

“The agencies believe that the limited timeframe for the deferral will in some respects help to manage potential risk by balancing the need for immediate relief due to the National Emergency with safety and soundness concerns for risk to lenders,” the agencies state.

The agencies also note that the National Credit Union Association will consider a similar rule later this week that would apply the same standards to credit unions.

Banks will soon be able to postpone some appraisals until 120 days after a mortgage closes