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.
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.
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.
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.
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)
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.
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)
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 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.
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 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 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 2020-4, 2020-10, 2020-16, 2020-25, 2020-34 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.
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 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.
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.
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.