With the coronavirus continuing to reshape the face of the country and the economy, the biggest players in the mortgage business are moving to make it easier to lend under these extraordinary circumstances.
Last week, Fannie Mae and Freddie Mac relaxed their standards for both property appraisals and verification of employment on the loans they buy.
And late last week, the Federal Housing Administration and Department of Veterans Affairs made similar changes.
The FHA and VA both announced late Friday that would allow for appraisal and income verification alternatives as appraising homes and verifying employment are more difficult right now than they were just a few weeks ago.
On the appraisal front, the FHA and VA will 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.
In its announcement, the VA cited the contagious nature of COVID-19 as the main factor for making the appraisal changes.
“Loan Guaranty is committed to protecting veterans, appraisers and industry stakeholders while continuing to execute our mission of delivering VA home loan benefits,” the VA said in a bulletin.
“The potential risks associated with the COVID-19 provides unique challenges in the appraisal process as VA fee panel appraisers may be required to access the interior of homes,” the VA continued.
As a result, the VA said it is changing the “long-standing practice of requiring access to the interior of the home for certain types of loans and characteristics of those loans.”
According to the VA, appraisers are still required to follow the same procedures of the VA appraisal process and are still required to meet Uniform Standards of Appraisal Practice and state requirements, but are allowed the broader use of exterior inspection.
“Considering the health and safety of veterans and VA Appraiser Fee Panel members during this national emergency, valuations may come in a form of an exterior-only appraisal with enhanced assignment conditions or in limited instances, a desktop appraisal,” the VA said.
According to the VA, the new appraisal rules apply to purchase and refinance loans but considered to be “temporary in nature.” The VA noted that it will return to “normal operations after the national emergency.”
The stipulations are much the same for the FHA.
According to the FHA, approved appraisers can “use exterior-only or desktop-only appraisal inspections as a substitute for interior inspections for most forward mortgage and Home Equity Conversion Mortgage purchase transactions and exterior-only appraisal inspections for most forward refinance and HECM traditional and refinance transactions.”
Beyond the appraisal policy adjustments, the FHA and VA are also making changes to their employment verification policies.
“Many employers have suspended non-essential operations in compliance with state and local government directives,” the FHA said in its announcement. “This has hampered the ability of mortgagees to fully comply with FHA requirements for reverification of employment, either verbal or electronic, to be completed within 10 days prior of the date of the note.”
For forward and HECM loans, the FHA will now allow mortgagees to use the following alternatives to re-verify borrower’s employment:
- Year-to-date pay stub or direct electronic verification of income dated immediately prior to the note date
- Bank statement showing a direct deposit from the borrower’s employer for the pay period that immediately precedes the settlement date
According to the FHA, for forward purchase transactions, the mortgagee must also provide documentation of a borrower’s cash reserves equaling a minimum of two months of principal, interest, taxes, and insurance.
The VA’s policies are similar.
“Lenders should continue to use good judgment and flexibility when verifying stable and reliable income,” the VA said. “Lenders should make every effort to satisfy VA’s longstanding requirements concerning verification of employment.”
But if a lender is unable to verify employment through traditional means due to coronavirus-related issues, the lender can use “employment and income verification third-party services,” the VA said.
“If the lender is not able to utilize a third-party service to verify employment and income, a verification of employment can be met with evidence of direct deposit from a bank statement and pay stubs covering at least one full month of employment within 30 days of the closing date,” the VA said.
“Lenders should reconcile payment amounts between the paystubs and direct deposit listed on the bank statement,” the VA continued. “If the required VOE documentation cannot be obtained by evidence of bank statement and pay stubs, and the borrowers have cash reserves totalling at least two months mortgage payments post-closing, the loan is eligible for guaranty.”
And for more information on the FHA’s changes, click here.