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 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.
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.
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.
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.
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.
We are further extending the effective date for Mortgages with Application Received Dates through April 30, 2021 for the following flexibilities:
- Appraisal and GreenCHOICE Mortgage® flexibilities announced in Bulletins 2020-5, 2020-8 and 2020-11
- Completion report flexibilities announced in Bulletin 2020-5
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|
|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 Announces Guide Bulletin 2021-8 (Temporary Servicing Guidance Related to COVID-19)
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.
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