The Federal Housing Agency (FHA) recently released guidance in response to the COVID-19 pandemic related to employment and appraisal verifications, and loss mitigation options. Doeren Mayhew has outlined the highlights below.

Employment Verification and Appraisals

On March 27, 2020 the FHA released Mortgagee Letter (2020-05) addressing re-verification of employment, and exterior-only and desktop-only appraisal scope of work options for single-family programs impacted by COVID-19.

The changes are effective immediately for appraisal inspections and re-verifications of employment completed on or before May 17, 2020. These changes are temporary and will not be incorporated into the SF Handbook 4000.1.

The FHA will allow mortgagees to waive the requirement related to the mortgagee’s process of completing re-verification of employment 10 days prior to closing for forward and home equity conversion mortgages (HECM) transactions if the mortgagee is not aware of any loss of employment by the borrower and has obtained the following:

  • Evidence the borrower has a minimum of two months principal, interest, taxes and insurance (PITI) in reserves.
  • A year-to-date paystub or direct electronic verification of income for a pay period proceeding the note date.
  • A bank statement showing direct deposit from the borrower’s employment for the pay period immediately proceeding the note date.

Additionally, temporary changes to the appraisal protocols for most single-family forward, HECM purchases and refinance transactions were announced. Furthermore, all appraisals made in connection with the servicing of FHA’s forward or reverse mortgage portfolios now permit exterior-only or desktop-only appraisals. Appraisals must be reported on the existing Acceptable Appraisal Reporting Forms by property and assignment type, and must include a signed certification indicating whether the appraiser did or did not personally inspect the subject property, along with the extent of the inspection. Each of these options have required protocols outlined below.

  • Exterior-Only Option
    • Appraiser will observe the property and improvements from the street.
    • Appraisal will be completed “as-is” unless minimum property requirements (MPR) related deficiencies are observed.
    • The appraisal may utilize extraordinary assumptions when necessary.
    • No sketch, interior photos or rear exterior photos are required.
  • Desktop-Only Option
    • Appraiser will not physically observe the property and improvements.
    • Appraisal will be completed “as-is” unless MPR related deficiencies are known.
    • The appraisal may utilize extraordinary assumptions when necessary.
    • No sketch, interior photos or rear exterior photos are required.
    • No comparable viewing or photos are required.

When an Appraisal Update and/or Completion Report (Form 1004D) Part B is required as evidence of the completion of required repairs, the FHA will permit a letter signed by the borrower affirming the work was completed with further evidence of completion such as:

  • Photographs of the completed work.
  • Paid invoices indicating completion.
  • Occupancy permits.

Loss Mitigation Options

On April 1, 2020, the FHA released a Mortgagee Letter (2020-06) regarding loss mitigation options for single-family borrowers affected by the COVID-19 national emergency in accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The exclusion of the COVID-19 national emergency from FHA’s PDMDA guidance in Handbook 4000.1 is effective immediately. Any mortgages using FHA’s PDMDA loss mitigation options (i.e., forbearance and standalone partial claims) must convert those options to loss mitigation options listed in the mortgagee letter. Mortgagees must implement all procedures set forth no later than Apr. 30, 2020. Outlined below are the sections changed in the handbook:

  • Forbearance for Borrowers Affected by the COVID-19 National Emergency
  • COVID-19 National Emergency Standalone Partial Claim
  • Exclusion of Borrowers impacted solely by the COVID-19 National Emergency from the FHA’s PDMDA Guidance in Handbook 4000.1
  • Extension Period for Home Equity Conversion Mortgages Affected by the COVID-19 National Emergency

The mortgagee must not deny these home retention options to borrowers experiencing an adverse impact on their ability to make on-time mortgage payments due to the national emergency and satisfy the loss mitigation criteria set forth:

Forbearance Plan

  • Borrower is experiencing a financial hardship negatively impacting their ability to make on-time mortgage payments due to COVID-19 and makes a request for a forbearance.
  • The initial forbearance period may be up to six months. If needed, an additional forbearance period of up to six months may be requested by the borrower and must be approved by the mortgagee.
    • Terms may be shortened at the borrower’s request for either initial or extended forbearance.
  • Mortgagee must waive all late charges, fees and penalties, if any, as long as the borrower is on a forbearance plan.

Standalone Partial Claim

  • At the end of the forbearance period completed by owner-occupant borrowers, the mortgagee must evaluate the borrower for the standalone partial claim no later than the end of the forbearance period(s).
  • Eligibility requirements are as follows:
    • The mortgage was current or less than 30 days past due as of March 1, 2020.
    • The borrower indicates they have the ability to resume making on-time mortgage payments.
    • The property is owner-occupied.
  • Terms of the claim are as follows:
    • Accumulated late fees are waived.
    • Amount includes only arrearages, which consists of principal, interest, taxes and insurance.
    • Does not exceed the maximum statutory value of all partial claims for an FHA-insured mortgage, as listed in Statutory Maximum for Partial Claims (III.A.2.k.v(D)(2)(a)).
    • Borrower receives only one
  • Documentation required for partial claims as listed under Delivery of Partial Claim Documents (III.A.2.k.v(J)(6)).
  • Servicers must report the default/delinquency reason codes within the single-family default monitoring system at the end of each reporting cycle and must be updated as the borrowers circumstances change.
  • Mortgagee must evaluate any borrower not brought current through a “the new partial claim option for other loss mitigation home retention options and home disposition options.

Any borrower who is granted a forbearance and is otherwise performing as agreed, is not considered to be delinquent for purposes of credit reporting. The FHA requires servicers to comply with the credit reporting requirements of the Fair Credit Reporting Act (FCRA); however, the FHA encourages servicers to consider the impacts of the national emergency on borrowers’ financial institutions and any flexibilities a servicer may have under the FCRA when taking any negative credit reporting actions.

Upon request of borrower currently in a home equity conversion mortgage, the mortgagee must delay submitting a request to call a loan due and payable. The initial extension period may be up to six months and an additional six months can be granted if needed.

Should you have any questions on recent FHA guidance, contact one of our specialists in our Financial Institutions Group below:

Heather Feltner | Lending and Compliance Specialist | feltner@doeren.com 

Lindsey Becker | Internal Audit and Compliance Manager | becker@doeren.com

Jeni Butler | Senior Compliance Specialist | butler@doeren.com

Marcia Baker | Senior Compliance Specialist | baker3@doeren.com

Debbie Rodriguez | Senior Compliance Specialist | drodriguez@doeren.com

Joe Zito | Shareholder | zito@doeren.com

Author

Heather Feltner, Lending and Compliance Specialist – Financial Institutions Group