Impact of COVID-19 on Originations – FHA, VA, and USDA
In these difficult times, AmWest remains committed to the health, safety, and prosperity of our clients, customers, and employees. Like many participants in the mortgage industry, we continue to take measures to adapt to the market disruption brought about by the spread of the COVID-19 virus. As part of these efforts, we have adopted to FHA, VA and USDA’s temporary policies on the following topics:
FHA (Mortgagee Letter 2020-05)
Changes to FHA’s re-verification of employment: Provided that the Mortgagee is not aware of any loss of employment by the borrower, the following may be obtained in lieu of a re-verification of employment with 10 days of the Note date:
For forward purchase transactions, evidence the borrower has a minimum of 2 months of PITIA in reserves; AND
A Year-to-Date paystub or direct electronic verification of income for the pay period that immediately preceded 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.
Changes to FHA’s Appraisal Protocols: When applicable, as described below, the appraiser may amend the scope of work to perform an Exterior-Only or Desktop-Only. The Appraiser may rely on supplemental information from the 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.
Appraisal Forms and Amended Certifications: The optional Exterior-Only and Desktop-Only appraisals must be reported on the existing Acceptable Appraisal Reporting Forms by Property and Assignment Type. These forms will require amended certifications and clear scope of work disclosures. The Exterior Appraisal forms Fannie Mae 2055 and Fannie Mae 1075 are not FHA approved forms and are not compatible with FHA’s Electronic Appraisal Delivery portal.
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.
Appraiser will not physically observe the Property and Improvements.
The Appraiser 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 will accept these (appraisals) flexibilities for:
Forward purchase transaction. These flexibilities are not permitted on New Construction, Construction to Permanent, Building on Own Lands and 203(k) purchases.
Rate and Term Refinance and Simple Refinance. These flexibilities are not permitted on Cash-Our Refinances and 203(k) refinances.
Appraisal Update and/or Completion Report (Form 1004D) Part B:
When a Completion Report 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. These flexibilities are not permitted on New Construction, Construction to Permanent, Building on Own Lands, and 203(k) transactions.
EFFECTIVE: The Appraisal guidance is effective immediately for appraisal inspections completed on or before May 17, 2020. The re-verification of employment guidance is effective immediately for cases closed on or before May 17, 2020.
VA (Circular 26-20-10 & 26-20-11)
Income Verification Guidelines: Lenders should continue to use good judgment and flexibility when verifying stable and reliable income. Lenders should make every effort to satisfy VA’s longstanding requirements concerning Verification of Employment (VOE) as outlined in the VA Pamphlet 26-7. If the propriety method is impacted due to temporary business closures, the lender should use the guidelines listed below:
May utilize employment/income verification third-party services.
If the third-party services cannot be utilized, a VOE can be met with evidence of direct deposit from a bank statement and paystubs covering at least one full month of employment within 30 days of the closing date.
If the required VOE documentation cannot be obtained by evidence of bank statements and paystubs, and the borrowers have cash reserves totaling at least 2 months PITI post-closing, the loan is eligible for guaranty.
Underwriting Loans: VA guidelines generally require income to be stable and reliable for 2 years.
If the borrower was impacted by COVOD-19 (i.e. furlough, curtailment of income, etc), that period should not be considered a break in employment or income provided they have returned, or are anticipated to return, to work in the same capacity and income levels. In addition to standard verification documentation, applicants should provide furlough letters where applicable.
Lenders are encouraged to take proactive measure in documenting and uploading evidence of their analysis and justifications for all borrowers, especially for “borderline” cases.
Appraisal Valuation Practices during COVID-19: VA will change the long-standing practice of requiring access to the interior of the home for certain types of loans and characteristics of those loans. Appraisers will still follow the same procedures of the VA appraisal process and are still required to meet USPSP and state requirements for delivering an appraisal that meets those qualifications but are allowed the boarder use of exterior inspection. Considering the COVID-19 circumstances, the valuations may come in a form of an Exterior-Only appraisal with enhanced assignment conditions or in limited instances, a Desktop appraisal.
The appraiser will continue to gain access to view the interior property in the instances outlined below:
Purchase Transaction (vacant property). When the appraiser’s assigned geographic jurisdiction does not have restrictions imposed by authorities prohibiting individuals leaving their domicile, such as mandatory quarantine or shelter-in-place.
Purchase or Refinance Transaction (property occupied). When the appraiser’s assigned geographic jurisdiction does not have restrictions imposed by authorities prohibiting individuals leaving their domicile, such as mandatory quarantine or shelter-in-place. In addition, all parties must agree to the interior inspection and meet the following:
Either party has not been instructed by health authorities to stay home or practice social distancing, or
Does not have flu-like symptoms (such as fever, cough or shortness in breath); or
Has not been quarantined under direction of public health authorities; and
No parties are within the CDC guidance of high risk.
If either party does not wish to move forward with the interior inspection or do not meet the criteria listed above, the appraiser may move forward with an Exterior-Only appraisal with enhanced assignment conditions. Lenders may not direct the appraiser to conduct an interior inspection.
This report option with enhanced assignment conditions will be completed on the FNMA 2055/1075 URAR form. For manufactured homes and multi-unit (2-4 unit) properties, appraisers will use the 1004C or 1025 form. Appraisers are to boldly and inconspicuously state “Per Department of Veterans Affairs, no interior inspection was provided due to COVID-19.” Exterior-Only appraisal with enhanced assignment conditions will be limited to the maximum 2020 Freddie Mac Conforming Loan Limit for a one-unit limit for the county or county-equivalent area.
Purchase or Refinance transactions: When an area may be restricting personal contact or when either party are in or have others that reside with them that are categorized as high risk according to the CDC, the appraiser must make every effort to complete the enhanced assignment conditions as required on Circular 26-20-11 dated March 27, 2020.
Desktop Appraisal Valuations:
This report option will be completed on the FNMA 1004, 1073, 1004C, 2025 and the appraiser will be required to attach a copy of the provided Scope of Work (SOW) Exhibit A, certifications, and assumptions in all reports. Appraisers are to boldly and inconspicuously state “Per Department of Veterans Affairs, no interior inspection was provided due to COVID-19.”
Purchase transactions: The appraiser defines the scope of work and will annotate in the appraisal report concerning the source of information provided.
Cash-Out Refinance transactions: The appraiser will prioritize assignments based on purchase transactions first and determine if sufficient information is publicly available and verifiable. Appraiser are not required to proceed on the assignment if information is not available to provide a credible report. In the event the appraiser is not able to complete the assignment, the lender may choose to cancel the request or have the RLC suspend the assignment until the national emergency is lifted and a more detailed report can be produced.
VA will suspend Reconsideration of Values (ROV) requests for Cash-Out refinance loan until further notice.
Appraisers are to suspend any renovation and repair assignments until further notice.
Due to the lack of verification of completion by the appraiser or inspector that repair items have been completed, lenders have one of the two following options to supply to VA:
Lenders have the authority and are encouraged to certify repairs, especially repairs performed by licensed personnel, instead of an appraiser certification as outlined in the VA Pamphlet 26-7, Chapter 10 Appraisal Process (NEW), Section 23, Topic b.
Repair certifications which involve lead-based paint must still be completed by a fee appraiser.
VA Pamphlet 26-7, Chapter 12 Minimum Property Requirements (NEW), Section 33, Topic b, requires a wood inspection report if the property is located in an area on the Termite Infestation Probability Map where the probability of termite infestation is “very heavy” or “moderate to heavy”.
If there is no known or visible evidence of termite infestation present, the seller and realtor must provide a certification to that fact.
EFFECTIVE: This temporary guidance is effective immediately and until further notice.
Verbal Verification of Employment: 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 minimum of two 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 with no income at the time of closing are not eligible for SFHGLP loans regards of available cash reserves.
Residential Appraisal Reports – Existing Dwelling: For purchase and non-streamlined refinance transactions:
In 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.
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 new construction properties or construction-to-permanent loans. As a reminder, appraisals are not required for streamlined and streamlined-assist refinance transactions.
Repair Inspection – Existing Dwelling:
When 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.
The lender 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.
EFFECTIVE: This temporary guidance is effective immediately and until 60 days from March 27, 2020.