Announcement 2020-04-01
Impact of COVID-19 on Originations – UPDATED
On March 23, 2020, RL announced our adoptions of Fannie Mae’s Lender Letter 2020-03 & 2020-04, and Freddie Mac’s Bulletin 2020-5 regarding their Temporary Policies on COVID-19 Impacts. Fannie Mae and Freddie Mac have updated their Policies to provide additional clarity and flexibility to lend in a prudent and responsible manner.
In addition to previously announced policies, we have adopted to the following updates for further guidance:
Age of documentation: modifying the age of document requirements from four months to two months for most income and asset documentation.
Verification of self-employment: requiring lenders to confirm the borrower’s business is open and operating within 10 business days of the note date.
Market-based assets: updating policies for use of stocks, stock options, and mutual funds for down payment, closing costs, and reserves.
Flexibilities for New construction loans: adding additional options for documentation including the use of two new certification templates.
Temporary appraisal requirement flexibilities: allowing exterior-only inspection appraisal or desk top appraisals – Updated to remove “order of preference” for permissible appraisals.
Age of Documentation:
Age of document requirements from 120 days to 60 days. If an asset account is reported on a quarterly basis, the most recently issued statement must be obtained.
When the lender receives employment and income verification directly from a third-party employment verification vender, it is required that the information in the vendor’s database be no more than 60 days old as of the note date.
There are no changes to the age of documentation requirements for military income documented using a Leave and Earnings Statement, Social Security, retirement income, long-term disability, mortgage credit certificates, public assistance, foster care, or royalty payments.
Due to the federal income tax filing extension granted through July 15, 2020, we are eliminating the following documentation requirements. (These normally apply for income types that require copies of federal income tax returns when the mortgage has an application or disbursement date between April 15th and July 15th.):
A copy of the IRS Form 4868 (Application for Automatic Extension of Time to File US Individual Tax Return), and
IRS Form 4506-T transcript confirming “No Transcript Available” for the 2019 tax year.
Verification of Self-Employment:
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 10 business days of the note date. Below are examples of methods 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 of self-employment verification);
Evidence of current business receipts within 10 days of the note date (payment for services performed):
Lender certification the business is open or operating (lender confirmed through a phone call or other means);
Business website demonstrating activity supporting current business operations (timely appointment for estimates or service can be scheduled).
Market-based Assets:
When the borrower is using stocks, stock options, or mutual funds for assets:
When used for down payment or closing costs, evidence of the borrower’s actual receipt of funds realized from the sale or liquidation must be documented in all cases.
When used for reserves, only 70% of the value of the asset must be considered, and liquidation is not required.
Flexibilities for new construction loans:
For new construction properties where the appraisal is “subject to completion per plans and specifications,” and also when the property is 100% complete but an interior and exterior inspection appraisal cannot be completed, a desktop appraisal on the forms identified in the following table will be permitted. These requirements apply to purchase transaction only and exclude all construction-to-permanent loans.
Topic
Changes
One-unit property, including a unit in a planned unit development (PUD) or a detached condominium unit
Uniform Residential Appraisal Report (Form 1004/Form 70)
Condominium unit
Individual Condominium Unit Appraisal Report (Form 1073/Form 465)
Cooperative unit
Individual Cooperative Interest Appraisal Report (Fannie Mae Form 2090)
Two- to four-unit property
Small Residential Income Property Appraisal Report (Form 1025/Form 72)
Manufactured Home
Manufactured Home Appraisal Report (Form 1004C/Form 70B)
Documentation requirements for new construction loans:
If construction of the property has not yet begun or is partially complete, and the appraisal report will be completed “subject to completion per plans and specifications,” the lender must provide the appraiser with, or ensure that the builder has provided the appraiser with the following:
Plans and specifications
Survey and/or plot plan
Current photos of the subject property
If construction has not yet begun, a photograph of the site and down the street in both directions
If construction is partially complete, a photograph is required of the following:
A front view of the subject property
A rear view of the subject property
The main living area of the subject property
Basement, including all finished rooms
A copy of the complete, ratified sales contract, and all addenda
If construction of the property is 100% complete, and the appraisal report will be completed “as is,” the lender must provide the appraiser with, or ensure that the builder has provided the appraiser with the following
Plans and specifications
Survey and/or plot plan
Current photos of the subject property
A front view of the subject property
A rear view of the subject property
A street scene (i.e. a photograph down the street in both directions)
The kitchen of the subject property
All bathrooms of the subject property
The main living area of the subject property
Basement, including all finished rooms
A copy of the complete, ratified sales contract, and all addenda
Builder certification:
The lender must obtain a signed Builder Certification attesting that the information provided is true and correct. This certification must be included in the loan file.
Completion reports for new construction properties:
For new construction properties where the appraisal report was completed “subject to completion per plans and specifications,” if the lender is unable to obtain a completed Appraisal Update and/or Completion Report as a result of COVID-19 related issues, the Completion of Construction Certification will be accepted.
Temporary appraisal requirement flexibilities – UPDATED:
This update removes the “order of preference” for permissible appraisals. Either a desktop appraisal or an exterior-only inspection appraisal will be allowed in lieu of the interior and exterior inspection appraisal (traditional appraisal).
EFFECTIVE: These updates are effective immediately for all loans in process and remain in place for loans with application dates on or before May 17, 2020.
We anticipate that there will continue to be challenges that arise, and we will be in touch with updates and proactive guidance. Thank you for your cooperation in this matter.