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Fannie, Freddie issue new mortgage lending rules due to prolonged shutdown

Imposes minimum reserves requirement

Fannie Mae and Freddie Mac, in consultation with the Federal Housing Finance Agency, announced new mortgage origination requirements in light of the ongoing government shutdown.

Earlier this month, Fannie Mae released guidance Wednesday with new policies on how lenders can originate mortgages during the government shutdown.

The government partially shut down after Congress and the president failed to pass a new funding bill before the holidays, and now, nearly a month later, that shutdown continues.

In its original guidelines, Fannie Mae explained it was assuming the shutdown would be temporary. But now, as the shutdown drags on, the GSEs issued further guidance.

“With the shutdown extending for a longer period of time, we are concerned about the impact that continued income interruption may have on borrowers’ ability to meet their mortgage payment and other monthly obligations,” Fannie Mae said in its letter to lenders. “In light of this, we developed this Lender Letter jointly with Freddie Mac and in consultation with FHFA.”

The mortgage giant explained that the GSEs are imposing a minimum reserves requirement that will serve as a compensation factor to offset the risk associated with the interruption of income.

There is also more flexibility regarding the verbal verification of employment and paystub age requirements. These temporary requirements will apply to all borrowers impacted by the shutdown and will automatically expire once the government is fully funded and resumes operations.

New reserve requirements

Fannie Mae announced that for loans other than high loan to value refinances that have application dates on or after Jan. 16, 2019, the borrower must have the greater of:

  • Two months of documented reserves, or
  • For loan casefiles underwritten through Desktop Underwriter, the amount of reserves required by DU (with overlays as required by the Selling Guide for certain transactions); or
  • For manually underwritten loans, the amount of reserves required for the transaction per the Eligibility Matrix and Selling Guide.

Verification of Employment

Due to the shutdown and the difficulties in obtaining a VOE, the GSEs will now accept loans from lenders without verbal VEO under the certain circumstances if the lender files a written statement describing the steps the lender took to obtain the verbal VOE and that the requirement could not be met as a direct result of the shutdown.

But Fannie Mae pointed out that many VOEs are still easily available through automated systems and third-party service providers.

The GSEs are also waiving the requirement that the paystub be dated no earlier than 30 days prior to the initial loan application date. Lenders must obtain the most current paystub that reflects year-to-date earnings and may need to obtain the final 2018 year-to-date paystub to accurately calculate income. All other paystub requirements remain unchanged.

“We appreciate the understanding and consideration that lenders extend to borrowers coping with the hardships imposed by the shutdown,” Carlos Perez, Fannie Mae senior vice president and chief credit officer for single-family, said in the letter. “We will continue to monitor the situation and may provide additional guidance if the shutdown continues.”

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