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FHA and VA Following Freddie and Fannie

Mar 31, 2020

As we have said before, with so much going on in the world today, it can be hard to keep up with it all.  Loan guidelines seem to be changing every day as the coronavirus continues to reshape the face of our country, as well as our economy.  What’s true today could be untrue tomorrow, and how do you know what’s true or what to believe. It’s important to stay up-to-date on what’s happening and we are committed to consistently providing you with helpful updates related to the mortgage industry.

Last week, Fannie Mae and Freddie Mac made some major announcements regarding the relaxing of their requirements for physical inspections for some appraisals.  Late Friday, both the FHA and VA announced they will be following suit.  If an appraiser cannot go inside the home, for any reason, they will allow Exterior-Only, or in some cases, Desktop Appraisals for most purchase and refinance transactions.  Appraisers will now rely on public records, multiple listing service information and other third-party data sources to identify property characteristics.  According to the VA, these new rules are “temporary in nature” and will return to “normal operations” once we are through this crisis.

Fannie Mae and Freddie Mac also released guidelines that allow for more flexibility and alternatives in verifying employment for Borrowers whose workplaces are temporarily closed as well as allowing for some flexibility for those on leave.  The FHA and VA announced they will be making changes to their employment verification policies as well.

The FHA will allow the following alternatives to re-verify a borrower’s employment on forward purchase and HECM loans:

► For forward purchase transactions, there must be evidence the Borrower has a minimum of 2 months of Principal, Interest, Taxes and Insurance (PITI) in reserves; and

► A year-to-date pay stub or direct electronic verification of income dated immediately prior to the Note date, or

► A bank statement showing a direct deposit from the Borrower’s employer for the pay period that immediately precedes the Note date.

According to the VA, “Lenders should make every effort to satisfy VA’s longstanding requirements concerning Verification of Employment (VOE).”  However, if a lender cannot obtain employment verification through traditional methods, they will temporarily be allowed to “utilize employment and income verification third-party services.” 

If a lender is not able to utilize a third-party service, “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.  Lenders should reconcile payment amounts between the paystubs and direct deposit listed on the bank statement. (3) If the required VOE documentation cannot be obtained by evidence of bank statement and paystubs, and the borrowers have cash reserves totaling at least 2 months mortgage payments (PITI) post-closing, the loan is eligible for guaranty.”

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